Major Benefits for Foreign Nationals Buying U.S. Life Insurance
High-net-worth foreign nationals are increasingly taking advantage of the benefits of buying U.S. life insurance policies. Aside from the multiple advantages that life insurance affords U.S. citizens, there are even more compelling reasons for a foreign nationals to acquire U.S. life insurance.
“Life insurance policies owned by a non-resident alien that insure their own life are not deemed to be U.S. situs (legally located) property. Non-U.S. situs property is not subject to U.S. estate tax.”
There are several factors for the non-resident alien to consider U.S. life insurance. When a non-resident alien acquires U.S. situs property, for instance, a home in Los Angeles, they become exposed to U.S. estate tax. In stark contrast to a U.S. citizen, a non-resident alien’s applicable exemption is only $60,000, creating a significant tax exposure. Interestingly, however, life insurance policies owned by a non-resident alien that insure their own life are not deemed to be U.S. situs (legally located) property. Non-U.S. situs property is not subject to U.S. estate tax. U.S. life insurance policies are based in U.S. dollars which is very attractive across the globe. Additionally, in this dynamic distributions are currently exempt from U.S. tax withholdings on gains in the policy.
U.S. life insurance carriers are financially strong relative to many overseas counterparts. U.S. carriers are viewed as safe and in many instances afford more efficient, better-priced products. Additionally, for the ultra-high-net-worth “citizens of the world,” U.S. insurance companies represent access to enormous additional capacity beyond what is available in other markets, including offshore.
Among the other benefits, the requirements are minimal, the fixed product avoids market-risk, and Modified Endowment Contract rules do not apply so policies may be over-funded without the typical tax concerns.
Benefits only extend exclusively for high-net-worth international clients who meet these criteria:
• Demonstrable need for insurance
• Documentation of global assets
• Travel to the U.S.
• In some instances, further criteria are required
The following are common examples where affluent foreign nationals benefit from U.S. life insurance policies.
Case 1: A 44-year-old Venezuelan businessman generates $600,000 in tax-free income per year from age 65 to 90 (total income of $15 million) with a single premium of $5 million.
Case 2: A 55-year-old Mexican real estate developer pays a single premium of $4,950,000 creating an initial death benefit of $9 million with a cash value of $6,484,283 after 10 years.
Case 3: A Brazilian investment banker pays a single premium of $6.5 million producing a $20 million death benefit at age 95. Flexibility is available by way of cash values exceeding $10 million after 15 years.