Private Placement Life Insurance” commonly refers to a variable universal life insurance policy purchased from an offshore company, one which is not doing business in the United States. The policy is typically designed to maximize cash value, minimize payment for the death benefit of the policy, and still meet the requirements of a life insurance policy. No commissions are charged against the premiums, but instead a much lesser fee is paid to the insurance company for its services.
As a result, up to 95% of the premiums are allocated to cash value, which, with investment diversification, meets IRS requirements to earn tax free. As a pure investment vehicle, the offshore private placement life insurance policy offers the opportunity for tax free investment using currencies other than the U.S. dollars, such as the Euro, Swiss Franc, etc. The investment can be managed and maintained by a major foreign Bank. Life insurance premiums are not tax deductible. Upon cancellation of the offshore life insurance policy, a U.S. tax payer is obligated to pay tax on previously untaxed earnings. Otherwise, there is no reporting requirement in connection with an offshore life insurance policy. However, the Treasury (not the IRS) has taken a rather informal position that cash value in an offshore policy should be reported on a special treasury form. The offshore life insurance policy can be owned through an irrevocable life insurance trust, domestic or foreign, for estate planning purposes (a foreign trust must be reported) or can be owned directly by the insured, or the insured’s spouse and/or children. In addition to achieving ax free earnings, the offshore insurance policy provides effective asset protection to both the premiums paid and to the accruing cash value. In many states, including California, a judgment creditor can reach the cash value of a debtor’s U.S. insurance policy. However, an offshore policy is governed by the rules of its jurisdiction, preventing a judgment creditor from reaching the policy. This writer is unaware of any reported cases in which a judge has ordered an individual to cancel a life insurance policy on his/her life and repatriate the cash value. A Trustee in Bankruptcy, can, however, “take possession” of the policy if it is an asset and therefore it is possible to arrange a life insurance policy with zero cash value, to provide an additional level of asset protection. This policy nevertheless achieves tax free earnings on the “account” on which the death benefit is based. A policy can also be arranged for those who cannot pass the requisite physical exam. (The physical examination, if required, must take place outside the United States, usually in Vancouver). In summation, premiums paid for an offshore private placement life insurance policy can maximize the dollars available to earn tax free, in any currency, and invested in a broad scope of investment opportunities, usually handled through a major foreign bank as custodian and investment manager. Premiums paid for the policy and policy’s accruing cash value are afforded very substantial asset protection from U.S. and foreign creditors. Each policy must be designed to meet the individual specific goals and requirements. |
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