Questions and answers - US residents for tax purposes

What is happening?

If you are a US resident and have a plan with us, we may need to make changes to the way we handle your plan. US regulations enforced by the Securities & Exchange Commission (SEC) prevent us from processing certain transactions on your plan if you are a US resident.

What do you mean by US resident

We define ‘US resident’ as someone who is a US resident for US federal income tax purposes.

Why is Zurich making these restrictions?

Zurich engaged a major US law firm to help it understand US laws and regulations as they might apply to policies such as yours (i.e. your policy was taken out in the UK when you were resident in the UK) and where the policyholder (such as yourself) has since become a US resident. I summarise below the key points of the advice we have been given:

  1. Continued servicing of policies sold to non-US residents (at commencement) who subsequently relocated to the US, and have become US resident, does not violate US state insurance laws. Thus, your policy can continue in force.
  2. In the US, the term “securities” is defined in section 2(a)(1) of the Securities Act and Section 3(a)(10) of the Exchange Act. In addition to the types of instruments commonly understood to be securities, the term securities also includes a category of instrument known as “investment contracts”. We have been advised that unit-linked policies (such as yours) are caught by the US definition of “investment contracts”.
  3. Unit-linked policies, may give policyholders rights to take certain actions after issuance – such as making regular premium payments, increasing/decreasing premiums, making one time additional premiums and changing fund allocations. We have been advised that, in all these circumstances, the SEC would view the investment of a future premium (and the reinvestment of funds in the case of a fund switch) as a separate purchase of a security each time exercised.

As Zurich is a non-US insurance company and does not have SEC or US insurance regulatory permissions to purchase securities on your behalf, all of the above mentioned transactions have to be blocked whilst a policyholder is US resident.

Who is affected by these restrictions?

Owners of SEC relevant plans (generally speaking unit-linked Zurich policies) who are resident in the US will be affected by these restrictions. A ‘US resident’ is taken to be someone who is a US resident for US federal income tax purposes.

When do these restrictions start?

Depending on the policy you have, the restrictions that are required will be applied, unless you return a declaration confirming that you are not US resident for US federal income tax purposes.

What has changed since you issued my plan?

Following recent analysis of the regulations, we determined that the list of plan transactions that we cannot process for planholders who are US residents should be expanded to ensure customers and Zurich remain compliant with US laws.

What happens to my plan?

Your plan will remain in its existing fund(s) or strategy until it matures or the plan benefits are taken. You should be aware, however, that over time the charges we take may have an impact on the value of your plan.

Will Zurich continue to pay plan benefits?

Yes, we will pay all benefits when they become due.

What if I return to the UK?

If you return to the UK and cease to be US resident you should let us know. Once you have told us, subject to eligibility, UK legislation and your terms and conditions, the US restrictions will cease to apply and you may be able to make payments, switch funds or reinstate from paid-up.

What if I move out of the US?

We’ll continue to provide support during the lifetime of the plan, subject to any requirements or restrictions applicable in the country to which you move. Depending upon local rules, you might be able to resume making payments or switching funds within your plan. Please let us know as early as possible if you are planning to change your country of residence so that we can let you know of any applicable restrictions. In general, you should be able to make payments and fund switches after you have moved out of the US.

Will there be any further communications?

We will continue to send you regular statements as well as any other important information we might need to send. Our products are designed and administered for customers who live in the UK, so you may continue to receive automatically generated letters from us about your plan that do not reflect the US restrictions.

August 2011