Offshore life insurance policy

[appelman]

While living abroad, a client took out a 10-year "Vista" policy from Zurich Life Insurance. (It has been referred to in discussions as an "Investment Linked Product.") He cashed out a year early in 2010, showing about a 5K gain over his basis. He will not receive any kind of 1099. How and where should this gain be reported? Ordinary income? Capital gain? And is there any chance it will be considered an annuity subject to early withdrawal penalty?

[Burke]

You refer to it as a life insurance policy, but it may not be. Have you reviewed the policy? Impossible to know unless you have the contract. A gain of this sort would have been reported on a 1099-R in the US, and if it were classified as an annuity, yes there might be an early withdrawal penalty. You are going to have to have more information from the client and some documentation that clarifies what it was.

[Roberts]

http://www.csmltd.com/Zurich_International_Life_New_Vista_Plan.htm#HOW%20VISTA%20WORKS

Sounds like a universal life policy.

[Burke]

Yup, looks like it. So, not an annuity. Taxable gain, however, and ordinary income.