No, a traditional LIC policy (endowment, money back or whole life) isn't PFIC stock, so you don't file Form 8621 on it. The IRS still sees it through your FBAR, Form 8938 and a 1% tax on every premium. And some endowments lose their US insurance treatment entirely, which is where the real tax sits.
Why an LIC policy isn't a PFIC
A PFIC (passive foreign investment company) is a foreign corporation whose income or assets are mostly passive, under IRC Section 1297. That's why Indian mutual funds are PFICs: you own units in a pooled fund. With an LIC policy you own a contract with the insurer, not shares of anything.
Two more points hold that answer up:
- No indirect route. The PFIC rules can reach stock you hold through a company, partnership or trust. A policyholder holds none of those, so the regime has nothing to attach to.
- Insurance has its own penalty. When a policy fails the US definition of life insurance, Section 7702 keeps it an insurance contract and sets its own tax on the growth. Adding PFIC tax on top would tax the same gain twice.
No IRS ruling names an Indian LIC policy either way, so this is a position with a reasonable basis, not a certainty. It's the position I file on, and I'd rather you know that than read it as settled law.
Where ULIPs and fund-linked policies differ
A ULIP is a separate question, since its value tracks the fund units inside the policy. One exception applies to any policy: if it lets you buy funds open to the public, or pick securities, the IRS can treat you as owning those investments directly. Indian mutual fund units held that way are PFICs again.
What the IRS does want from an LIC policyholder
Skipping Form 8621 doesn't mean skipping the IRS. While you're a US person (a citizen, green card holder or resident under the substantial presence test), an LIC policy brings three filings:
- FBAR (FinCEN 114). An insurance policy with a cash value counts as a foreign financial account. You report its surrender value once all your foreign accounts together pass $10,000 at any point in the year.
- Form 8938. Cash value life insurance is a specified foreign financial asset, reported at surrender value. Living in the US, you file once your foreign assets pass $50,000 at year end or $75,000 at any time ($100,000 and $150,000 if married filing jointly). The FBAR and FATCA thresholds work independently, so check both.
- Form 720. Premiums paid to a foreign insurer on the life of a US person carry a 1% excise tax on each premium, filed quarterly. Premiums you paid before becoming a US person are outside it.
A pure term plan with no surrender value stays off the FBAR and Form 8938, but its premiums still owe Form 720. The Form 8938 instructions list cash value life insurance by name. The Form 8938 penalty for leaving a policy off starts at $10,000.
When an endowment stops counting as insurance
US law treats a policy as life insurance only if it passes Section 7702. That means the cash value accumulation test, or the guideline premium test plus a cash value corridor. LIC doesn't design its plans with that test in mind.
An endowment with premiums close to the sum assured, or a short term, is the type I'd expect to fail the guideline premium test. I don't assume either way, though. I ask for the surrender value schedule and premium history and run the test, because the result changes how you're taxed every year.
If the policy fails, you report income each year from your first US year. It's the rise in net surrender value, plus the cost of the life cover, minus the premiums you paid that year. That's ordinary income on your US return, even though LIC hasn't paid you a rupee.
What the US taxes at maturity or surrender
For a policy that passes Section 7702, nothing is taxed while it grows. The US taxes the payout, and only the part above what you paid in premiums.
Take Meera, a green card holder who paid ₹5,00,000 in premiums over the term of an LIC endowment. It matures for ₹7,50,000 with bonuses, so ₹2,50,000 is ordinary income on her US return, converted to dollars.
A few rules change the number:
- Money back instalments are taxed only once the total received passes the premiums you've paid.
- India's Section 10(10D) exemption can make the maturity tax-free in India, but it doesn't change the US answer.
- A failed policy has already been taxed year by year, so subtract those amounts as well and don't count the gain twice.
- A death benefit paid to your family is generally not taxable income in the US.
| Policy type | Form 8621 | FBAR and Form 8938 | Form 720 |
|---|---|---|---|
| Pure term, no surrender value | No | No | Yes, 1% of each premium |
| Endowment, money back or whole life | No | Yes, at surrender value | Yes, 1% of each premium |
| Policy investing in public funds you choose | Yes, for each Indian fund inside | Yes, at policy value | Yes, 1% of each premium |
How to check your own LIC policy
You can classify most LIC policies in about ten minutes with the policy document in front of you:
- Look for a surrender value. If there isn't one, it's pure term, and only Form 720 applies.
- Check who owns it. A trust, company or employer as owner changes who reports, so get advice before filing.
- Check how the money is invested. A fixed sum assured plus bonuses is a traditional plan. A policy that invests in public mutual funds you choose needs a PFIC look at those funds.
- Ask LIC for the surrender value schedule and your full premium history, then run the Section 7702 test.
- Report the surrender value on your FBAR and Form 8938, and file Form 720 for each premium paid as a US person.
Before your next premium
Pull your LIC premium receipts and surrender value schedule before your next premium date, since Form 720 runs quarter by quarter. If you hold an endowment you plan to keep to maturity, I'd run the Section 7702 test now, while you can still decide whether to keep paying. InvestMates can review the policy with you.
Frequently asked questions
Is foreign life insurance a PFIC?
No, a foreign life insurance policy is generally not PFIC stock, because you hold a contract with the insurer rather than shares of a foreign corporation. The exception is a policy that lets you direct money into funds sold to the public, where the IRS can treat you as owning those funds.
Do I need to report life insurance to the IRS?
Yes, if your foreign life insurance has a cash or surrender value, it goes on your FBAR and Form 8938 once you cross their thresholds. Every foreign policy on a US person, term included, also owes the 1% Form 720 tax on premiums. If you've missed years, there are ways to fix late FBARs.
Is LIC maturity amount taxable for NRI?
If you're a US taxpayer, yes: the US taxes the LIC maturity amount above the premiums you paid. India may exempt it under Section 10(10D), but that's an Indian rule and it doesn't reduce your US tax.
Does an LIC term plan with no surrender value go on my FBAR?
No, an LIC term plan with no surrender value stays off your FBAR and Form 8938, because both reach only insurance with a cash value. Its premiums still owe Form 720. A return of premium plan has a cash value in effect, so treat it like an endowment when reviewing your term cover.
Should I keep filing Form 8621 on an LIC policy I already reported?
No, my position is that no Form 8621 is owed on an LIC policy going forward. Don't amend or withdraw past filings without a review, though. If you paid tax under Section 1291 on a surrender, a refund claim has a deadline and needs careful handling.