In the UK, annuities and life insurance are both relatively simple concepts that can play an important part in your long-term financial planning.

However, these financial products are significantly different in the US. As an expat, you may well get confused and end up with something that doesn’t match your needs.

Understanding both life insurance and annuities is essential for making informed cross-border financial decisions when you move to the US.

Because of this, we devoted a recent We’re The Brits In America Ask an Expert podcast to this issue.

We spoke to Mark Maurer, president and CEO of insurance agency LLIS, to discuss how insurance and annuity products in the US differ from those in the UK.

Read about some of those key differences, the pros and cons of different policy types, and how they can be part of your financial strategy.

Life insurance in the UK revolves around straightforward options

There are two main options when it comes to life cover in the UK.

1. Term assurance

A plan over a set term that will pay out a lump sum if you die during the policy term. Usually taken out for a specific purpose, such as covering a loan, or providing a sum of money to your family.

2. Whole-of-life insurance

This provides cover for your entire life, guaranteeing a payout whenever you die. Because of the guarantee, it is usually more expensive than term assurance. It is often used for Inheritance Tax (IHT) planning.

Subject to your health, underwriting on both options is relatively straightforward, based primarily on your medical records and history.

US life insurance provides far more complex options

While the US has both term insurance and permanent insurance like the UK, there are many differences.  One is that many policies in the US have optional extra features, usually referred to as riders. Some of the optional riders you can add include accidental death and long-term care.

As for permanent insurance, it comes in many types, including whole life, universal life, variable universal life and equity indexed universal life. These are plans that provide a cash value which can be accessed and borrowed against, in addition to a death benefit.

The cash value is derived from premium payments, insurance company dividends, interest and/or the growth in a market index such as the S&P 500.

Because of the complexity and choices available, it’s important to ensure you choose the right life insurance option that meets your needs and financial objectives.

In the UK, annuities will provide you with a guaranteed income

Like life insurance, UK annuities are a relatively straightforward concept and an important retirement income planning option. They provide you with the valuable security of a guaranteed income, often for life.

The money you use to purchase this will usually come from your accrued pension fund. The income you receive will depend on your age, health, and life expectancy, and other optional features, such as whether you want that income inflation-linked or it to be payable to your spouse or partner should you pre-decease them.

There are also enhanced annuity options, based on your health and lifestyle, which could provide you with a higher income.

Importantly, there is no investment element in UK annuities, and the income is guaranteed from the outset.

US annuities are a very different concept to those in the UK

There are annuity options in the US that are similar to UK arrangements and simply provide you with a guaranteed income for life.

Beyond that, however, US annuities provide far more flexibility and a variety of options.

Indeed, the term “annuity” can tend to be a bit of a misnomer, as it’s used to describe products that provide tax-deferred growth as you accumulate your fund, and then an income in retirement. This means they are much more akin to UK pension plans.

Like UK pensions, deferred annuities in the US offer a range of investment options, and you are able to draw cash from your US annuity from age 59½ without penalty.

As with life insurance, US annuities come with optional “riders”, allowing you to customize your plan with features such as a guaranteed increase in fund value over a period of time, as well as death benefits.

While these can provide valuable flexibility, they can add to the cost.

More choice is clearly a good thing, but it makes it imperative that you choose the right option for you.

Expert advice can help you make the right insurance and annuity decisions

Regardless of the differences between the US and UK versions, there is no doubt that life insurance and annuities can form an important part of your financial planning strategy.

However, it’s all too easy to choose an option that is unsuitable for your needs and situation, or that could be highly expensive with charges eating away at the value of your accrued fund.

Because of that, we would always recommend that you seek expert advice. That’s whether you are in the process of moving to the US and want to plan ahead, or you already have life and annuity policies and need to review their suitability and map out a way forward.

You should also check the ongoing validity of any UK life insurance plans you have if you are living, or intend to live, in the US.

Get in touch

Life insurance and annuities can form an integral part of your long-term financial planning.

If you are a British expat living in the US and would like to discuss your own arrangements, please get in touch to arrange an exploratory Zoom call to talk through your options.

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