A Canadian resident may sometimes qualify for a U.S.-issued life insurance policy, but Canadian residence alone doesn’t produce a yes-or-no answer. The insurer’s foreign-resident rules, the location of the sale, state and provincial licensing, tax status and the policy’s Canadian tax treatment all matter.
Can You Buy U.S. Life Insurance While Living In Canada?
Don’t assume you’ll be eligible for a U.S. policy because you have a U.S. address, bank account, property, business, spouse, or tax ID. Approval depends on what Canadian province you reside in, the carrier’s rules regarding coverage for Canadians, and jurisdictional rules regarding whether the insurer and agent are authorized to make the sale. Some carriers require Canadians to have some type of qualifying tie to the U.S.
It’s also possible that some or all aspects of the application, medical exam, and/or delivery of the policy would need to take place in a qualifying U.S. state. It’s wise to ask the carrier to confirm in writing they are authorized to provide a U.S. policy to someone living in your province. It’s also a good idea to clarify where you must be located in order to complete each part of the process.
Buying US Life Insurance As A Canadian Resident
It is important to remember that citizenship/immigration and tax status are not always aligned. For example, U.S. citizens living in Canada may have wider-ranging tax and reporting requirements than Canadian tax residents that are not U.S. citizens/green card holders. A person that holds a U.S. Visa, or otherwise spends time in the U.S., is not necessarily a tax resident of the U.S. nor necessarily eligible to purchase insurance.
In addition, while OSFI’s focus is on whether the material aspects of the insurance activity take place in Canada, some of these activities (promotion, residency, etc.), may trigger provincial/territorial insurance legislation requirements. The foreign insurer and the producer should ensure that they are acting in accordance with the law. Applicants should not be encouraged to hide or mask their true residency/location.
Requirements For Canadians Purchasing US Insurance
There is no comprehensive list of which insurers accept Canadian residents, so you’ll want to ask for more information in writing before you buy. Ask the producer to identify in writing:
the insurer, policy, and state of issuance (that is, which company is issuing the policy? Is it licensed and regulated in Canada? What are their residency requirements for Canadian residents? What are their requirements for residents of your province?)
steps that require a U.S. visit, tax documents that will be accepted, ID requirements, U.S. bank accounts needed, currency used to make premium and other payments
where to get a medical exam, who they’ll contact for medical history, how to file claims from Canada
the producer’s insurance license, who regulates any activities in Canada, free-look/cancellation periods, jurisdiction, and complaint process. Don’t send medical information or pay for coverage until you’re comfortable with their responses.
U.S.-Issued Policy Vs Canadian-Issued U.S.-Dollar Policy
If all you’re looking for is a policy that provides a death benefit in U.S. dollars, talk to your Canadian-licensed adviser about options.
Keep in mind that currency and country are not one and the same, as it’s possible that a Canadian insurer could offer a policy denominated in U.S. dollars.
| Issue | U.S.-issued policy | Canadian-issued U.S.-dollar policy |
|---|---|---|
| Eligibility | Depends on insurer, the state, the specific foreign-resident program and where it was sold. | Depends on the Canadian insurer’s underwriting and product availability |
| Primary oversight | Which U.S. state and Canadian rules apply to the transaction? | Canadian federal and provincial insurance framework |
| Canadian tax | Foreign-policy tax and reporting analysis may be needed | Note that there may be tax implications associated with accessing and/or ownership of this policy despite its having been tailored for the Canadian market. |
| T1135 | A policy that is issued in a foreign country is specified foreign property that may be reportable if applicable cost basis thresholds are met. | Insurance policy, although denominated in U.S. currency, is not foreign property where policy is issued by insurer that is resident in Canada. |
| Claims and service | Confirm cross-border forms, payment method and governing law | Canadian servicing and complaint channels are normally available |
| Insolvency protection | Do not assume that all policies are Assuris protected; always check who has issued the policy to determine what protection applies. | Look up Assuris’ rules of coverage and verify whether or not the Canadian issuer is a member. |
Factors To Consider When Buying U.S. Life Insurance
Regulatory And Contract Differences
Also review the state of issue, governing law, grace period, contestability, beneficiary rules, premium guarantees, complaint process and any charges.
Ask which office will be administering your contract if you stay in or return to Canada.
Just because it is similar to a policy you could get in Canada does not mean it will have the same contract provisions.
Canadian Tax And Reporting
Form T1135 – Foreign life insurance policies are a type of specified foreign property. CRA has indicated that the adjusted cost basis of the policy is an acceptable estimate of the cost. Therefore, a Canadian resident should consider whether they have an aggregate cost amount in excess of $100,000 for all of their specified foreign property at any time during the year and consider their obligation to file a T1135 accordingly.
This threshold amount is separate and distinct from the amount of income, if any, reportable on your income tax return. Life insurance policies that qualify as life insurance in the U.S. are not necessarily going to be considered exempt in Canada.
Advice from Canadian tax professionals should be sought before issuing such policy, and not simply upon a contemplated surrender. Whether or not income will be taxed upon an accrual, loan, dividend, transfer, or surrender depends upon the terms of the contract and the provisions of the tax law.
Read More: Review Canadian Tax Treatment of Life Insurance
U.S. Tax Status And Estate Tax
U.S. estate tax implications in cross-border situations can be very complex. As a starting point, U.S. citizens are subject to U.S. estate tax rules with respect to their worldwide assets.
With respect to life insurance proceeds on a non-U.S. resident/non-citizen, the IRS regards the life insurance as foreign-situs property for U.S. estate tax purposes. However, depending on ownership, the transfer-for-value rule, trusts, beneficiaries, other assets and many other considerations, the estate tax treatment can differ.
Therefore, it’s not possible to provide a definite answer regarding estate tax implications for green-card holders, dual citizens and cross-border situations in general.
Currency And Payment Risk
But, of course, there’s the flip side to this. If the Canadian dollar weakens, someone earning Canadian dollars would have to pay more of them to meet the same U.S. dollar premium.
That’s the offsetting risk associated with holding a U.S. dollar policy. If the Canadian dollar strengthens, you’d be able to receive less Canadian dollars upon death for that same U.S. dollar-denominated policy.
Claims And Customer Service
Keep in mind there may be additional steps in claims processed across borders. Check with the insurer if certified copies of death certificate, medical authorization and tax forms can be submitted electronically, if documentation can be sent to the insurer’s office in claimant’s Canadian province/state, what currency claims are paid in and what type of account to make payment to.
Read More: See How Moving Abroad Can Affect Life Insurance
Reasons Of Purchasing US Life Insurance As A Canadian Resident
| Possible reason to consider it | Question that tests the claim |
|---|---|
| A U.S.-dollar obligation or beneficiary | Would a Canadian-issued U.S.-dollar policy meet the same need with simpler tax and servicing? |
| A feature not available in the compared Canadian quote | Is the feature contractual, and what charge, exclusion or risk comes with it? |
| A quoted premium appears lower | Are death benefit, guarantees, term, health class, fees, exchange costs and tax treatment actually the same? |
| You expect to move to the United States | Will the contract and service remain suitable in both countries, and does the move change tax residence? |
Claims that the U.S. market provides a wider selection of products at a lower cost need to be validated.
Quotes should be compared for an equal benefit with the same guarantee period and similar underwriting decisions.
What Is The Best Type Of Policy For A Cross-Border Need?
The country where a policy is issued has nothing to do with whether term or permanent insurance makes sense.
Temporary needs, such as income replacement, debt coverage or a specific business need, make term insurance a possibility.
Lifelong insurance needs make permanent insurance an option, but it’s important to understand guarantees, costs, fees, tax considerations and ongoing expenses before committing to a permanent policy. Dividends are not guaranteed and a large insurance budget doesn’t automatically make permanent insurance a good idea.
Cross-Border Life Insurance Checklist
- Define a rationale for a US-issued policy. How is this different than a policy simply denominated in US$? Compare the US contract to an equivalent Canadian contract, including benefit, guarantees, premium period, and currency.
- Obtain from the insurer, in writing, rules about eligibility and the location of the transaction, applicable to your province and the state that is being considered. Check with this state whether the producer is licensed. If anything about the transaction will involve a producer in Canada, check with your provincial regulator as well.
- Have your Canadian cross-border tax professional confirm the tax-free exempt policy status, T1135 consequences, and US tax status.
- Document all representations, particularly those about place of residence, application, premiums, tax returns, etc.
- Never sign anything that is false or misleading as to place or residence.
Read More: Compare Canadian Life Insurance Options