Add Global Flair to Your Life Insurance

Physician's Money DigestApril30 2004
Volume 11
Issue 8

While federal laws and IRSregulations have erodedstrategies to protect assets,defer taxes, andcreate privacy, there's still hope for physician-investors. That's because one opportunityremains to achieve these valuableobjectives: international life insurance.

Foreign Opportunity

Unlike domestic insurance, internationallife insurance is free from regulatoryburdens that limit investment options.Individual insurance policies are createdfor accredited investors, who must placeat least $500,000 into their policy. Themortality expense is low, and the upkeepexpense is paid from inside the policy.

Age discrepancy:

For an international life insurancepolicy to be legitimate, it must maintaina minimum amount of insurance. Forexample, if you are a 40-year-old physician,the corridor test requires that youpay 5 times the premium. In other words,a $500,000 premium requires $2.5 millionin face coverage. The same policy requires a 70-year-old topay only 1 1/2 times the premium (ie,$750,000 in coverage).

Once the mortality expense is covered,the build-up of investments is taxdeferred.Depending on how the policy isstructured, tax-free withdrawals and eventax-free loans can appreciate over time.Insurance benefits are completely tax-freeto your estate if structured properly.

Rules and Regulations

Unlike foreign bank and brokerageaccounts, there is no annual federalreporting requirement for insurance policies.They are also exempt from mostcreditors. What they aren't exempt fromare IRS guidelines regarding both investorcontrol and diversification.

Investors can only give general guidanceto the insurance company when itcomes to the investment mix. While it isacceptable to discuss the breakdown ofstocks, bonds, and European investments,it is inappropriate for investors totry to effectuate individual trades.


Portfolio diversification rules requirea cap of 55% in any one asset, 70% inany two, 80% in any three, and 90% inany four. Every month, the insurancecompany will test for compliance andmake changes when necessary. Hedge and mutual funds are often used asunderlying investment vehicles. Althoughthese vehicles are generally tax-inefficient,an insurance wrapper creates a tax deferralthat can supercharge returns.

Joel M. Nagel, a frequent writerand speaker on international assetprotection concepts, is the creatorof "The Physician's Asset ProtectionPlan." He practices law inPittsburgh, Pa, creating legal structuresaround the world to protect his global clientele.He welcomes questions or comments, or visit

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