Besides the Tax Savings, Are You Aware of These Other Unique Benefits of Offshore Variable Life Policies?
There are significant tax, asset protection and investment diversification benefits available with an Offshore Variable Universal Life (VUL) policy. However, there are additional advantages to consider when evaluating an Offshore VUL policy that you might not have considered in the due diligence process.
Many offshore jurisdictions offer life insurance contract legislation that is better than legislation under U.S. state law. The assets invested with an offshore policy are considered to be in a separate account of the policy and will receive protection from creditors. This is different than a domestic policy which might subject the owner of the policy to creditor risk in the event of an insurance company bankruptcy.
Another significant advantage of offshore policies is that it becomes harder for a U.S. creditor to reach the policy’s assets as they are located offshore. There will be significant expense by the legal firm representing the plaintiff to determine specific assets and information related to the policy. Of course this expense is passed on to the plaintiff. In many cases instead of the normal contingency fee arrangement, the client is required to provide upfront costly legal fees. As a result of these fees the plaintiff may consider dropping the case. Also, an owner of an Offshore VUL will also enjoy investor confidentiality and financial privacy under the laws of many offshore jurisdictions, to which similar laws are not applicable in the U.S.
Another consideration of an Offshore VUL is the elimination of high-pressure marketing and sales that occurs so often in the domestic life insurance market. Offshore VUL discussions related to product, pricing, financial and medical requirements are completed offshore. Because of the lower regulatory oversight and reporting obligations, offshore insurers pass on their lower expenses to the policy owner in the form of lower fees. Offshore carriers have the opportunity to establish contracts with many of the strong reinsurers that participate in the global life insurance market. As the market continues to expand, the products will offer larger death benefits to meet client’s objectives.
Unique planning opportunities are available for individual’s owning underperforming domestic or foreign policies. It is possible to exchange tax-free (Sec. 1035 Exchange) to a lower cost, tax compliant Offshore VUL. In many cases the expenses can be reduced significantly from a domestic retail policy. The sad reality is that many foreign policies are now non-compliant. This puts the insured and beneficiary at risk and I’ll address the details of this situation in a future article.
If you have an underperforming domestic/foreign policy you may want to obtain an objective analysis to see if there are benefits of exchanging to a new Offshore VUL. Of course there are many factors in evaluating an Offshore VUL policy, so please perform the proper due diligence before taking any action.
