What Happens to Life Insurance When You Change States or Move Abroad?

Life insurance is supposed to last. Either for decade-long terms or forever. But life can take you on distant paths. What happens if you move states or overseas? Does life insurance coverage carry over when you move? Both state and international moves can cause issues with your life insurance.

We’re here to provide peace of mind. In this guide, we will explore how relocation impacts life insurance, including portability, legal considerations, and policy adjustments.

Moving Between States: What Changes, What Stays the Same

Policies are generally portable

Coverage usually continues when you change states. Life insurance is a contract between you and the insurance company, and the contract is based on which state the policy was originally issued in. The following usually stay the same:

• Death benefit amount
• Premium schedule
• Coverage terms
• Federal income tax treatment

Regulatory oversight

State Departments of Insurance govern rules differently. Different state laws can impact the payouts or coverage of life insurance. For example, filing a death benefit claim may take longer or shorter if you are in a different state.

State regulation differences can also play a major role if your insurance company goes bankrupt. If the life insurance company fails and cannot payout death benefits anymore, states have their own consumer protections in the form of guaranty associations and other policies. There are state-based guaranty associations in all 50 states, DC, and Puerto Rico. Specific benefits and coverage limits vary by state.

Common changes

If you do need to send in a new application for life insurance, you can expect a different premium rate. New applications will involve new underwriting and risk assessments, and possibly a medical exam. Existing policies should retain the same premium.

Grace periods can differ by state. The grace period is the extra time you get after forgetting to make a payment, preventing your policy from being immediately cancelled. This can be a major problem if you have issues keeping up with the recurring premium payments. Going from 31 day grace period to a 30 day grace period has taken many policyholders by surprise.

Free-look laws also vary by state, usually from 10 days to 30 days. The free look period (or provision) gives you a chance to cancel your life insurance for any reason with no penalty. Life insurance policies can be a lifelong commitment, so a longer free-look period benefits buyers, especially those who are moving to a new state.

Inheritance and estate taxes can differ when you relocate to a new state, which may impact your life insurance policy. Because of taxes, retirees may consider relocating to a lower tax state to reduce tax liability.

Policy loans and nonforfeiture options may have state-specific rules, but these amounts typically do not change if you have an active life insurance policy and you move to a new state.

Since different life insurance companies can vary greatly in how they deal with moving (states or abroad), it is crucial to check your own policy details and ask your insurer.

Updating Your Policy After a State Move

Importance of updating address and contact details

Even if your move doesn’t functionally change anything, insurance companies still find it important for you to keep your details updated. After you move to a new state, make sure you update your personal details in your insurance profile.

A new state means new potential risks and life insurance regulations. The life insurance company might transfer your information to a new local insurance branch.

Revisiting beneficiary designations after relocation

Moving is a major life change, and people move for all sorts of reasons. Life changes should prompt a revisit to your life insurance policy and other estate planning components. You may want to change your life insurance beneficiary due to changing relationships or needs.

Checking with new state DOI for consumer protections

It’s good to know what coverage limits and consumer protections exist in your new state. The main one to know is the guaranty association limit in your new state. This protection could play an important role.

Choosing a reputable, financially robust life insurance company makes it far less likely for you to need a higher guaranty association limit.

Moving Abroad: Complexities and Risks

Portability Abroad

Most life insurance policies remain valid if you move overseas. However, there are many exceptions and nuances that might come into play, so it is important to check your policy details for anything that could interfere with your coverage.

Let’s go over potential issues you could encounter if you move abroad with a life insurance policy.

High risk regions

Certain countries that are sanctioned or considered high-risk may have restricted life insurance coverage.

In addition, if your beneficiary needs to file a death benefit and you died in a high risk region, this could impact the claims process.

Medical exams

If you want to apply for new coverage abroad or extend your term life policy, it may be harder to schedule medical exams while abroad. Life insurance policies are generally easier to buy and qualify for if you finish the application before moving overseas.

Death claims overseas

If a death claim needs to be filed overseas, it will likely require extra documentation or come with delays. The life insurance company would need to verify that the death is legitimate. Many people commit insurance fraud by faking their death while secretly building a new one overseas.

Beneficiary and estate laws

Your new country might have laws related to inheritance, taxes, and life insurance.

Make sure to revisit your beneficiary designations. Make changes as needed.

In addition, review local life insurance laws when moving abroad. For example, in some countries, there are forced heirship and succession laws that can impact who your life insurance payouts will go to.

Currency and exchange rate differences

Premium payments are still required when you move abroad. Currency and exchange rate issues may be possible, such as for the death benefit.

Legal & Tax Considerations

Many people opt for whole life insurance for the cash value accumulation and tax advantages. However, moving abroad can have legal and tax consequences.

Tax impact for U.S. citizens abroad

Whether you are a U.S. resident or citizen can impact your life insurance tax treatment. U.S. citizens who live overseas usually still have income tax-free death benefits. Estate tax rules still apply to U.S. citizens and residents. This generally means that people with large estates need to be more careful about tax impacts.

If you decide to move abroad permanently, with no intention to return to the United States, you could need to pay even more taxes. Check your new country’s inheritance and estate tax laws. Your beneficiaries might be expected to pay both countries’ taxes on your life insurance payouts.

Essentially: For U.S. citizens who decide to retain citizenship, their life insurance should still fall under U.S. estate tax rules. However, renouncing citizenship or establishing permanent residence elsewhere can put your life insurance subject to the new country’s tax laws.

Consult a tax professional before making major changes.

Foreign inheritance laws may conflict with U.S. beneficiary designations

Forced heirship laws may impact how your life insurance payouts must be distributed if you go to a foreign country.

Forced heirship law: Parents cannot completely disinherit children. Assets must be distributed a certain way.

American expats should check double-tax treaties or consult international tax advisors. Expatriates can face new legal and financial challenges when it comes to estate planning, life insurance, and tax expectations.

Policy Modifications You May Need

Currency payment options or premium arrangements for expats

Make sure that your life insurance company accepts foreign bank accounts of your new country. International payment methods are not universally accepted.

Adding riders for international coverage or travel

In some cases, you might need to purchase an extra rider or endorsement to modify your life insurance policy for international coverage.

Considering new local policies to supplement U.S. coverage

Rarely is it advantageous to buy two life insurance policies. They’re a big financial commitment because of how long the terms can be, and whole life policies last essentially forever. However, after moving to a new country, a new local policy could have its benefits.

Practical Scenarios

State Move Example

A U.S. resident moves from Texas to New York. His premiums don’t change, but his state guaranty protections differ. The guaranty association is the state-based system that pays covered claims in case a life insurance company becomes insolvent.

New York guaranty association limit: $500,000

Texas guaranty association limit: $300,000

He is glad that the limit has gone up sigificantly. It gives him more peace of mind that even if something happens to his life insurance company, his beneficiaries will be able to receive a large sum of money.

Expat Example

A U.S. citizen decides to relocate to Spain. She assumes her policy will remain valid, but she double checks by confirming that the insurer accepts their foreign address. She realizes there is a condition in her policy that says she must send mail to notify the insurance company of her move. She quickly does this in time, ensuring there is no lapse in coverage.

High-Risk Country Example

U.S. travel advisories list numerous countries as “Level 4”: Do Not Travel. Traveling to these locations can be life-threatening due to widespread terrorism, crime, and/or disease outbreaks. Other regions not listed as Level 4 may also be considered dangerous by life insurance companies.

If you move to a country that has travel restrictions or known risks, it may lead to a denial of new life insurance coverage or exclusions. Many life insurance policies have travel restrictions due to the life-threatening risks in certain regions.

How to Protect Your Policy During a Move

1. Notify the insurer immediately of your new residence

Life insurance companies appreciate knowing about any changes that could impact a person’s risk level. Different states, cities, and countries can greatly impact your mortality risks. In some countries, people have longer average lifespans. In others, the risk may be so high that they are restricted from coverage.

Always confirm policy portability with your carrier when you move. Temporary travel may also impact coverage depending on where you’re headed.

2. Review estate/beneficiary planning with an advisor

An expert in estate planning and life insurance products can help you see what your best options are and how moving can affect your life insurance coverage.

3. Explore supplemental coverage if relocating long-term abroad

An additional local life insurance policy could help you if you need to bridge any gaps in coverage due to your move.

Conclusion

While life insurance coverage generally stays the same when you change states, moving abroad can have a serious impact. Even between states, local regulations can complicate things.

Review your policy before locating to avoid surprises. Notify your insurer of your move to ensure it doesn’t catch them off guard.

Since relocations can affect coverage, claims, payment methods, and estate taxes, it is best to consult with your life insurance company or a financial advisor if you’re moving.