Many Canadians choose to spend the colder months in warmer places like Arizona. These seasonal travelers are often called snowbirds. Some even live part-time in both Canada and the United States, making them dual residents.
If you spend significant time in both countries, it is important to understand how life insurance works in each. Life insurance rules and benefits vary between Canada and Arizona. This article will explain key differences that matter to snowbirds and dual residents.
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Key Differences Between Canadian and Arizona Life Insurance
Canadian policies often have different term lengths than Arizona policies. Some may automatically renew after a set period. Others may require a medical review after the initial term. Arizona policies may allow more flexible conversion options. This means you could change a term policy into a permanent one. However, doing this could affect the premiums and coverage amounts.
Medical eligibility also differs between the two regions. In Canada, permanent residents and citizens can apply more easily. Insurers may ask fewer health questions for certain types of policies. For example, North Cover Canadian insurance doesn’t even require medical or blood tests; however, their policies are based on some aspects of your health like whether or not you’re a smoker. In Arizona, non-U.S. citizens may need to provide more information. Some insurers may not offer full coverage unless you have legal residency. Medical exams are often required for higher coverage amounts.
Currency is another important factor for snowbirds. Canadian policies are usually paid in Canadian dollars. If you have income in U.S. dollars, conversion fees can become costly. Arizona policies are paid in U.S. dollars. If your income is in Canadian dollars, currency exchange may affect your payments. You could end up paying more during times of unfavorable exchange rates.
Tax Considerations for Snowbirds and Dual Residents
In Canada, life insurance death benefits are usually not taxed. The money goes directly to your named beneficiary. This can help protect your family’s financial future. However, owning a U.S. life insurance policy can lead to complications. Canadian residents may need to report foreign financial assets. Failure to do this can result in penalties.
In Arizona, the U.S. government may apply estate taxes. If you are not a U.S. citizen but own significant assets, this could impact your heirs. The IRS considers the value of your worldwide estate. Income taxes in the U.S. can also apply to certain policies. This is especially true for investment-linked insurance plans. You may need to report any gains on your annual return.
Cross-Border Planning Tips
Work with a financial advisor who understands both Canadian and U.S. insurance laws. Cross-border experts can help you choose the right type of policy. They can also guide you through application and compliance steps. Make sure your beneficiaries are clearly named. This is important in both countries. If your beneficiary lives in a different country, the payout process may take longer.
Some snowbirds choose to hold policies in both Canada and Arizona. This can provide coverage no matter where they are living. It also helps manage risks from tax or legal changes. You can also consider international policies. These are offered by insurers that operate in both countries. They may include flexible payment and payout options designed for global citizens.
What Happens if You Spend More Than 183 Days in the U.S.?
Spending more than 183 days in the U.S. may affect your residency status. The IRS uses the “substantial presence test” to determine if you are a U.S. tax resident. If you qualify, you may need to file a U.S. tax return. This change can impact your life insurance. Policies designed for non-residents may no longer apply. You could lose coverage or be required to buy a new plan.
Tax rules also shift with residency. You may face U.S. income tax on global income. You may also become subject to U.S. estate tax, even if most of your assets are in Canada. To avoid these complications, keep track of your travel dates. You should also consult a tax professional. They can help you determine if you have triggered U.S. residency.
Pros and Cons of Holding Policies in Each Country
Canadian life insurance offers stability for permanent residents. Policies are often backed by government guarantees. Payouts are also usually tax-free and easier to manage. However, Canadian policies may not help if you pass away in the U.S. Some insurers may deny claims if death occurs outside Canada. You should review the fine print of your policy.
Arizona policies offer good flexibility for residents and frequent travelers. U.S. insurers often allow larger policy amounts. They also offer many policy customization options. The downside is that U.S. policies may involve more tax complexity. You may also pay more if you are not a U.S. citizen. Premiums can be higher, and medical requirements stricter.
Common Mistakes to Avoid
One common mistake is assuming your Canadian policy covers you in the U.S. This is not always the case. Some policies have geographic restrictions that limit coverage outside Canada.
Another mistake is naming the wrong beneficiary. If your chosen beneficiary lives in a different country, delays may occur. Tax rules may also complicate the payout. Some people forget to update their policies after moving. Life changes like divorce, remarriage, or relocation should prompt a policy review. Keeping your documents current is critical.
Finally, many snowbirds do not speak with a cross-border expert. They rely on standard advisors who may not understand both legal systems. This can lead to costly errors or coverage gaps.
Bottom Line
If you split your time between Canada and Arizona, understanding life insurance rules in both places is important. Policies differ in terms, taxes, and coverage rules. Choosing the right one depends on your travel habits and residency status.
To protect your loved ones and your financial legacy, take action now. Review your existing policies and consult a cross-border insurance expert. With the right planning, you can enjoy peace of mind no matter where you spend your winters.
