Offshore Life Insurance - Offshore Annuity Policy

reasons to expatriateMany clients want to invest in the various investment markets around the world, but also want to make sure they do so in a safe and prudent way.  In addition, investors might be interested also in protecting these investment assets from taxation, especially estate taxes.  What is the solution?  One answer for many clients is to invest through an offshore variable annuity or offshore variable life insurance policy.  In fact, while many American investors might be concerned about investing with a company that do not know, many such plans offer mutual fund investments with the very same US Mutual Fund companies investors do know and trust albeit offshore and tax free.

What Is An Offshore Annuity?

What Is Offshore Life Insurance?

To start this discussion, it is important to understand some terms and also exactly what an annuity is (most people understand life insurance, so we will not go into that area too much).  Annuities are basically retirement savings plans offered through Life Insurance companies.  They have been around long before things like IRA accounts and 401K plans came into vogue, and they are still around today.  Why do investors prefer or trust retirement annuities over other kinds of retirement savings programs?  Well, for starters, the US Life Insurance industry is on far more secure footing financially than any bank.  They have to be, by law.  Which is to say, US Life Insurance companies must maintain assets equal to 102% or greater of all policy liabilities.  In other words, if every single policyholder cashed in their policy on the same day (or died in the case of life insurance death benefits, another important part of a retirement annuity) the insurance company by law must be able to make good.  This is in direct contrast to the shaky US banking system that exists at the moment today.

Annuities, as we started to already explain, are a type of vehicle meant to provide a secure retirement or pension.  Investors can made deposits monthly, quarterly, yearly or all at once through a lump sum.  Long before the advent and popularity of mutual funds, annuities usually provided investors with a safe tax-free return on their funds.  Today, many investors wanted the option to invest with stock or other kinds of mutual funds, and the insurance companies have responded with new investment options or products  which are called variable annuities (should the investor want mutual fund investment options aside from the standard fixed return).  The same holds true for what are called variable life insurance products as well.

Many people are confused when the term offshore is thrown in, but the fact is that offshore life insurance and offshore annuity policies work the same way as US based products do.  The only difference is that they are domiciled outside of the US, which allows for some very worthwhile tax planning strategies for the investor, especially in the area of estate taxes.  What kind of benefits? 

What Are The Benefits Of An Offshore Annuity or Life Insurance ?

For starters, most Americans do not know that retirement annuities must be liquidated and included in the persons estate tax calculation if the beneficiary is not a spouse.  So, for example, if the children or someone else is the beneficiary, the annuity is liquidated and goes to that beneficiary as TAXABLE income or gain.  In addition, it could also factor in the estate tax calculated amount as well.  Only when a husband or wife is the living beneficiary, is there some tax relief.  So, one answer might be an Offshore Annuity, whereby there is no reporting and whereby the investor has the option of naming an offshore trust or Panama Foundation as the tax-free the beneficiary, thus saving taxes and headaches for his or her heirs.  But that is not the only benefit with offshore annuities.  Investors concerned about having US based assets exposed to potential lawsuits might prefer to have those same assets offshore, and difficult to attach as a result.  Aside from all this, there is another benefit to consider, especially if you are a mutual fund investor.

Why Offshore Variable Annuities Are A Better Idea for Mutual Fund Investors

In the case of US mutual funds particularly, investors are forced to pay tax each and every year, regardless if they reinvest or not and regardless if they liquidate their mutual fund account or not.  Why is this so?  The regulations and rules are written in such a way that ALL US Mutual Funds Companies MUST pay out and declare capital gains and interest to shareholders.  Why?  So, the IRS can tax the investor annually.  This is not the case with many European Funds, often called SICAV funds, which retain capital gains and interest, to be automatically reinvested without a tax consequence (until the investor liquidates their mutual fund sometime in the future).  So, one benefit of an Offshore Annuity is that investors can participate in such SICAV funds without having the hassle they normally would trying to open an account as an individual investor.  But aside from that, investors can also participate in the very same US mutual funds they might be familiar with  tax-free and secure through an offshore insurance company annuity product.  What kinds of mutual funds?  Funds offered from Templeton, Fidelity Investments, Janus, Putnam, MFS and a number of other well-known names as well.  In this regard, investors can participate in some of the very same mutual funds, without the annual tax consequence, in addition to the other advantages already mentioned.