What are the problems with buying Hong Kong insurance with a US green card?

1. Most foreign insurance cannot enjoy the tax benefits of U.S. life insurance

U.S. life insurance needs to pass the 7-Pay test. Once the amount exceeds the upper limit, it will be recognized as MEC ( Modified endowment contract), MEC refers to investments made by some people to avoid taxes, which violates the original intention of life insurance. In this case, the death benefit remains income tax-free, but if the policyholder wants to withdraw it during the holding period, the proceeds will be taxable. If you are under 59 when you withdraw, you will face an additional 10% penalty.

If you want to continue paying premiums after meeting the definitions of 7-pay and MEC, there is an upper limit under the current insurance amount, and you will also face the problem of re-examination when adding insurance. During this period, if the premium paid in any year exceeds the corresponding limit, the policy will be deemed as MEC, and subsequent withdrawals will no longer enjoy tax exemption, and there will also be a certain penalty.

2. Foreign life insurance will be charged additional taxes

According to the U.S. Internal Revenue Service (IRS) regulations: U.S. tax residents who purchase overseas insurance need to pay a premium of 1 Taxes (under Revenue Code Sections 4371 and 4372), in addition to which taxes paid must be reported as well as ownership. ?

3. Strict reporting requirements for foreign life insurance

For Americans holding foreign insurance, such as life insurance, critical illness insurance, accident insurance, etc., the reporting requirements are very strict and involve There are:

Declar and pay 1% of the premium every quarter as consumption tax;

Fill in the 7720 tax form, declare the premium paid and pay the consumption tax;

Fill in the 8938 tax form , report the details of the insurance held;

If the value of the insurance account exceeds US$10,000, according to the US Foreign Financial Account Reporting Requirements (Report of Foreign Bank and Financial Accounts, FBAR), you also need to fill out Form 114 Tax return filing. And the applicable groups for FBAR are also U.S. tax residents, that is, U.S. citizens, green card holders and foreigners who have passed the residency test.

4. U.S. life insurance can reduce the impact of high estate taxes

The death benefit of U.S. life insurance is exempt from income tax, which reduces the impact of estate taxes to a certain extent and allows children to Get more assets. However, the death benefit of a U.S. life insurance policy belongs to the holder’s assets. If the insured and the holder are the same person, the death benefit will still be included in the holder’s estate.

After immigrating to the United States, wouldn’t it be a good idea to choose American insurance? Why insist on buying Hong Kong insurance? If it is a responsible agent and he knows that you have a green card, he will definitely not sell you.