Question

Reporting Bonus Proceeds from an overseas Life Insurance policy that matured

Forum|Forum|2 years ago
February 17, 2024
1 reply
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Hi

My wife is an US Citizen and had an insurance policy with Life Insurance Corporation India (LIC) for which yearly premiums were paid (My dad obtained the policy for her while she was in India and also paid the yearly fixed premiums). At the end of the 15 year policy period, the policy matured and LIC paid us back a sum which included the premium plus bonus.

The policy is a simple endowment plan policy and is not ULIP.

I definitely understand that we should pay taxes on the amount received above the premium paid.

Since the amount was way less than the FBAR reporting requirements threshold (10K), i don't think i need to file it.

How do i report this income? Will this be PFIC? or can i report it as other income?

I have been reading through similar topics and am trying to ascertain where i should report this.

Any feedback from the experts is greatly appreciated.

Not A Product Question

SusanY1

Since the policy was not a United Linked Insurance Policy (ULIP) it will not likely trigger Passive Foreign Investment Company (PFIC) reporting requirements. In this case, the best way to report the amount reported in excess of the contributions (the amount of the "bonus").

Bonus payments made in situations as you described are typically reported as "other income", however the calculation of the amount requires some somewhat complex determinations that are calculations not supported inside the TurboTax program.

The proper way to determine the gain is to convert each payment to USD at the exchange rate in effect at the time of the payment. This total of all of the payments is then the basis.

The taxable gain is the difference between the calculated basis and the surrender value paid out. This number may vary from the amount reported by LIC as the "bonus".

Once determined, that amount is reported in TurboTax under Wages & Income, then Miscellaneous Income, Less Common Income, and finally "Other reportable income".

In the other reportable income section you can provide your own description (India LIC would be fine) followed by the amount of the gain.

Also of note is that foreign insurance premium payments are subject to an excise tax reported on Form 720, filed quarterly. This form is required to be filed by either the person paying the premiums or the insured.

If these forms were filed and taxes paid, those taxes should be added to the basis. If the forms were not filed, it is best to consult with a tax professional who specializes in foreign tax matters.

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