Offshore Life Insurance
Investor Eligibility Criteria for Offshore Life Insurance
If you want to preserve your family’s wealth in a tax-friendly manner and pass it down to your children, an offshore life insurance policy may be a good option as you evaluate your objectives and long term planning. This type of insurance policy offers similar tax benefits of cash value growth and tax free death benefits like a domestic policy. However, the key feature that distinguishes the offshore policy is the investment flexibility. For example most investments are available to be used as premium payments. Unlike the normal domestic policy structure, cash is not a requirement for premium payment. In many situations, individuals will contribute assets such as foreign gold funds, hedge funds, highly appreciated global stocks, currencies and private placements. All the earnings will not be subject to tax as long as they remain inside the policy. Through proper planning with a qualified international legal advisor there may be opportunities to keep the death benefits outside of the estate and pass the benefits to the heirs tax-free. It’s important to evaluate only IRS compliant offshore policies to ensure that there will not be adverse tax ramifications.
Check out following criteria to find out if you are eligible for offshore life insurance.
You are financially and medically stable
The accredited investor rules apply for offshore life insurance policies. If your net worth is $1 million or more, you are a suitable candidate for offshore life insurance. Alternatively, if you earn at least $200,000 or more annually, you can avail offshore life insurance to protect your assets. You need to pass a comprehensive medical examination as a part of the insurance underwriting process to reap the benefits of offshore insurance. You also need to remember that all negotiations, tests and other qualification processes for offshore life insurance will be performed outside the United States.
You want to protect your assets from high tax rates
If you find yourself paying too much in federal and local taxes, you should consider offshore life insurance. Common forms of investment like stock portfolios, hedge funds, real estate and bonds are considered taxable and will be registered by the IRS. With the help of an international insurance expert, you can wrap up these assets in a tax-efficient and IRS compliant policy. This allows you heirs to acquire your wealth through life insurance. Additionally, this method reduces the estate tax and income tax burden on your heirs owing to the nature of the investment.
You are capable of traveling abroad
Offshore life insurance is widely available, regardless of their home country. But the entire process from beginning to end needs to be managed out side the US at the chosen offshore location. For this you need to travel outside the US.
Moreover, it is a good idea to meet your international financial advisor before making a life insurance investment at an offshore location. It is important that you feel comfortable with your advisor and trust him or her enough to honestly share all your financial details. The financial details need to be verified by an attorney, banker or accountant.
You need to provide for your family
If you are one of those people on whom other members of the family are financially dependent, you are sure to be occupied by the question “who will take care of them when I’m gone?” Offshore life insurance ensures that your family is well provided for.
For life insurance at an offshore location, you will be required to sharing your financial and personal details and have them verified. In addition to the medical information, financial justification is a requirement from the insurance company. This includes information on the source of money used for premium payment. If you meet the above criteria, offshore life insurance is an option well worth your consideration.
Due Diligence
It’s important to evaluate the underlying mortality costs and expenses of the policy. In most cases the overall expenses will be in the 4-5% range (percentage of total premium). Always ask the insurance company for a comprehensive detail listing of all the expenses.
Other Considerations
There are compliance rules that need to be evaluated including IRS diversification test No more than 55% in one asset class, No more than 70% in two asset classes, No more than 80% in three asset classes, No more than 90% in four asset classes. So you will need to have at least 5 asset classes within the policy to be compliant. Also, it’s imperative to have an investment manager or trustee appointed as the investment advisor. Finally, there are several forms that will need to be filed by your accountant to ensure IRS disclosure and excise tax: TD 90-22.1 Disclosure on Foreign Bank Account, Form 720 Excise Tax for Foreign Life Insurance (1% of premiums paid), Form 8938 Report of Foreign Bank and Financial Assets.
