Tuesday, May 9, 2017

Meeting the Life Insurance Needs of Affluent Foreign Nationals

By: Bill Jackson J.D., CLU®, Sr. Advanced Markets Consultant at 
Partners Advantage Insurance Services, LLC

With increasing globalization, more and more affluent foreign nationals have a presence in the United States. It is estimated that affluent foreign nationals control more than $70 trillion in assets and number over 14 million individuals*. Furthermore, these affluent families are culturally receptive to the protection offered by life insurance.

Why do many savvy foreign nationals look to the United States to buy life insurance? There are the usual reasons, perhaps to protect a business interest. Two reasons stand out above the rest. Foreign nationals, who own property in the United States, have unusual exposure to Federal Estate Tax. Also, foreign nationals crave the guarantees and stability of U.S. dollar based life insurance policies offered by U.S. carriers.

Resident and Non-resident aliens are treated differently for estate transfer tax purposes. Resident aliens are taxed just like U.S. citizens, and have the $5.4 million unified gift and estate tax exemption as well as the annual $14,000 gift tax exemption. The hurdle they face is that all foreign assets are included. They also do not have access to the unlimited marital deduction. Non-resident aliens don’t include foreign assets, but U.S. assets are subject to the 40% federal estate tax rate and they only have a $60,000 exemption. They can however, exclude annual gifts up to $14,000. In other words, a foreign national with a million dollar California residence would be liable for $376,000 of federal estate tax on that property alone on the death of the first spouse. Life insurance is the go-to option to avoid liquidation, and a secondary benefit is that life insurance is not considered U.S. situs property subject to estate tax. 

Even foreign nationals who hail from Class A or B countries often face volatile currency fluctuations. So, when they are looking to protect their family, they naturally gravitate towards carriers offering products backed by a stable currency. Therefore U.S. currency products and carriers are in demand. 

Because non-resident aliens can hold life insurance policies personally, without the policy being subject to U.S. income or estate tax, the goals of wealth preservation and providing retirement income can easily be accommodated. No life insurance trust would be required.
Which foreign nationals could benefit from U.S. based policies? Most carriers require some U.S. connection. These connections could take the form of a minimum stay of say 15 days per year, real estate ownership, a business interest or immediate family living in the U.S. Some carriers may also require that a percentage of the assets used to justify the coverage be held in the U.S.

Most all carriers will require that solicitation and applications be taken in the U.S., as well as medical exams are usually expected to be completed in the U.S.

At Partners Advantage Insurance Services, we have the experience and resources to help you be successful in this lucrative market segment. Not only do we provide access to the major U.S. carriers who cater to the foreign national market, we also have relationships that can provide international coverage to foreign nationals who do not have a connection with the U.S.

Call Bill Jackson J.D. CLU, Senior Advanced Markets Consultant if you have a case you would like to discuss or would like added information on: 888-251-5525, ext. 361.

For financial professional use only. Not for use with consumers.

*Source: World Wealth Report, 2015, Capgemini and RBC Wealth Management
Capgemini, RBC Wealth Management, and Scorpio Partnership Global HNW Insights Survey 2013.

This material is intended to provide general information only. It is not intended to render legal, accounting, Social Security or tax advice, and the services of those professionals should be sought. Financial professionals who utilize this material may be able to identify potential retirement income gaps and introduce products, such as fixed annuities, as potential solutions. The testimonial may not be representative of the experience of other financial professionals and is no guarantee of future success.