Cross-Border Life Insurance Part 4: Moving Across Borders – What Happens to Your Term Life Insurance and Beneficiaries?

Written by Carson Hamill CIM®, CRPC®, Associate Portfolio Manager & Assistant Branch Manager & Dean Moro BComm, CIM®, Associate Portfolio Manager

So, you’ve packed your bags, said goodbye to friends, and are ready to embark on a new adventure—moving from Canada to the U.S. or vice versa. Amid the excitement, one question might linger in the back of your mind: “What happens to my term life insurance policy and my beneficiaries when I cross the border?”

Don’t worry—your term life insurance won’t disappear the moment you cross customs. However, there are a few important things to know to keep your coverage intact and ensure your beneficiaries aren’t caught off guard.

• Moving from Canada to the U.S. with a Canadian Term Life Insurance Policy
• What the IRS and CRA Want to Know
• Moving from the U.S. to Canada with a U.S. Term Life Insurance Policy
• Beneficiaries

Moving from Canada to the U.S. with a Canadian Term Life Insurance Policy

If you're a Canadian with a term life insurance policy moving to the U.S., there’s good news: your policy remains valid. As long as you keep paying your premiums, your coverage stays intact. Think of it as an international warranty on your life—it follows you wherever you go.

However, if your premiums are in Canadian dollars, you’ll be subject to exchange rate fluctuations. Each time you pay, you’ll need to convert your U.S. dollars to Canadian dollars, which can mean paying more or less than expected, depending on the rate. When your beneficiaries file a claim, the death benefit will be paid in Canadian dollars, meaning they’ll also face exchange rate considerations when converting the funds to U.S. dollars.

What the IRS and CRA Want to Know

Although life insurance proceeds are generally not taxable in the U.S., the Foreign Account Tax Compliance Act (FATCA) may require you to report your Canadian policy to the IRS. This could mean additional paperwork.

Moving from the U.S. to Canada with a U.S. Term Life Insurance Policy

Now, if you're a U.S. citizen moving to Canada, your U.S. term life insurance policy will remain active, provided you keep paying the premiums. The difference is, you’ll now need to monitor exchange rates when converting your Canadian dollars into U.S. dollars to pay those premiums.

Just like before, when it’s time for your beneficiaries to collect the death benefit, it will be paid in U.S. dollars, and they’ll need to convert it to Canadian dollars, potentially facing exchange rate fluctuations.

Beneficiaries

Great news—your policy is still valid! But what about your beneficiaries? Here’s what you need to keep in mind:

If you’ve moved to the U.S. with a Canadian policy and your beneficiaries are in the U.S., they’ll receive the death benefit in Canadian dollars. This means they’ll need to convert the funds into U.S. dollars, which could lead to variations due to exchange rates. When the U.S. dollar is significantly stronger than the Canadian dollar, managing foreign currency fluctuations becomes crucial. Click here to learn more about strategies for handling these fluctuations: What to Do as a U.S. Individual Inheriting Canadian Dollars. Fortunately, in most cases, the IRS doesn’t tax life insurance proceeds, so your beneficiaries should receive the full amount, minus any conversion costs.

If you’ve moved to Canada with a U.S. policy and your beneficiaries are in Canada, the death benefit will be paid in U.S. dollars. Your beneficiaries will need to convert it into Canadian dollars, and the exchange rate may impact the final payout. Additionally, if your beneficiaries are U.S. citizens or residents, they may have U.S. tax reporting obligations, even though Canada typically doesn’t tax life insurance proceeds. It's advisable to consult with a tax professional to understand their reporting obligations and any potential tax implications.

The Bottom Line: Plan Ahead and Seek Expert Advice

Before making your move, it’s wise to notify your insurance provider to confirm that your policy will remain valid and enforceable across borders. Your life insurance policy is a crucial safety net for your loved ones, no matter where life takes you. By planning ahead and seeking expert cross-border advice, you can ensure that safety net remains strong, no matter which side of the border you’re on.

About Snowbirds Wealth Management

Gerry Scott is a portfolio manager and founder of Snowbirds Wealth Management, an advisory firm focussed on the cross-border market. Together with Dean Moro and Carson Hamill, associate portfolio managers with Snowbirds Wealth Management, they provide investment solutions for Americans living in Canada, and Canadians residing in the United States. Licensed in both Canada and the US, they provide tailored investment solutions to minimize the tax burden when moving assets across borders.

To schedule an introductory call, please click here.

Statistics and factual data and other information are from sources RJLU believes to be reliable but their accuracy cannot be guaranteed. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities nor is it meant to replace legal, accounting, taxation or other professional advice. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. The information is furnished on the basis and understanding that RJLU is to be under no liability whatsoever in respect thereof.

Raymond James (USA) Ltd. advisors may only conduct business with residents of the states and/or jurisdictions in which they are properly registered. Investors outside the United States are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this site. Raymond James (USA) Ltd. is a member of FINRA/SIPC.