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How are ULIPs taxed for US residents, and are they a PFIC?

ULIPs (Unit Linked Insurance Plans) are among the messiest holdings for a US-resident Indian. They wrap mutual-fund-style investments inside an insurance shell, and the US generally doesn't respect them as tax-favored insurance. The investment portion is typically treated as PFIC holdings — exposing you to the punitive excess-distribution regime and Form 8621 — and the insurance wrapper can add its own reporting headaches, including possible foreign-trust-style disclosures. The India tax benefit you bought the ULIP for simply doesn't carry over to the US system. So a product marketed as tax-efficient in India becomes one of the most tax-inefficient things you can own as a US resident. If you hold a ULIP and have moved to the US, get cross-border advice before surrendering or continuing it — the unwind needs to be planned, not improvised.

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