Updated April 6th, 2017
First of all, most people think of life insurance as “death insurance”, but the truth is that life insurance can be used as an asset, in particular we are talking about permanent insurance (Universal or Whole Life).
Now, in the case of Foreign Nationals (people that are not considered residents of the U.S.), using a life insurance as an assets may even be more beneficial because of the tax benefits of the life insurance.
So if you would like more information on how to save money, grow your assets and utilize life insurance as an asset, just contact us.
Estate Taxes for Foreign Nationals
If you are a Foreign National you could end up paying up to 39% of your assets in the United States to the IRS when you pass away. The IRS will want their money in 90 days, which may force you to liquidate some assets at a very inopportune time. These rules are very complex, so talk to your accountant to find out which assets are included and how much you could en up paying in taxes.
Life Insurance for Foreign Nationals as an Asset
Permanent life insurance could be utilized as an asset. The way Permanent life insurance works is you not only have the death benefit, but you have a cash value portion that grows predictably, and this cash could be accessed at any time.
A good permanent life insurance could give you a rate of return between 4-5% tax free on your cash value (in the long run), and the death benefit protection.
Life insurance vs Other Investment
Here is a hypothetical scenario where two identical Foreign Nationals will utilize different strategies.
Client A: 45 year old male foreign national purchased life insurance and contributes 20,000/yr .
Client B: 45 year old male foreign national purchased an investment account and contributes 20,000/yr .
What would happen at death?
Client A: He has a tax free death benefit of $1,300,000 (multiple companies would offer this) if something where to happen to him.
Client B: His balance will go to his beneficiaries and they will have to pay estate taxes.
They invest for 10 years and die:
- Client A: Family will receive $1,300,000
- Client B: Family will receive the current balance of the account. Lets say he had a fantastic investment and did$350,000. and have to pay estate taxes. Let’s assume they have to pay 30% above $60,000. That would leave the family with $203,000.
This would be a $950,000 difference.
They invest for 20 yrs and die:
- Client A: Family will receive $1,600,000
- Client B: Family will receive the current balance of the account. Lets say he had a fantastic investment and did $1,000,000. and have to pay estate taxes. Let’s assume they have to pay 30% above $60,000. That would leave the family with $658,000.
It would be a $942,000 difference.
They invest for 35 yrs and die:
- Client A: Family will receive $2,700,000
- Client B: Family will receive the current balance of the account. Lets say he had a fantastic investment and did $3,700,000. and have to pay estate taxes. Let’s assume they have to pay 39% above $60,000 (now they need to pay more). That would leave the family with $2,220,400.
It would be a $479,600 difference.
You can access the Cash Value on the Policy
Finally, the cash value portion of the policy could be accessed at any time, and it will grow approximately between 4-5% in the long run (at current rates which may vary at any time).
In reality, this makes permanent life insurance a great conservative investment, with fantastic liquidity. One of the drawbacks however is that in the first few years, the policy will not build much cash, so you have to be aware of this down side.
If you would like to see how the cash grows please contact us for a quote.
Leave us a comment if you have any questions!