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How will an offshore policy provide greater asset protection than a domestic policy?
How will an offshore policy provide greater asset protection than a domestic policy? Under Cayman Islands law, the assets of each policyholder are placed in a separate “segregated account”. In the event of the insolvency or bankruptcy of the insurance carrier, or any other policyholder, the segregated accounts are not subject to the claims of creditors and a policyholder (or the insured) is not subject to claims of creditors. A U.S. person who purchases a policy issued by a domestic carrier receives only the protection by state law (of his or her residence) against claims of creditors. Most U.S. states provide little protection. The Cayman Islands, The Companies Law (2007 Revision), allows certain insurance carriers to be registered as an "exempted segregated portfolio company". Bastion is formed as a segregated portfolio company and the legislation provides that the segregated accounts formed to fund an insurance policy are available solely to satisfy the insurance company's obligations to the owner of the policies. In addition, the legislation provides the assets in the separate, segregated accounts of the policy formed by the insurance company are not subject to claims of creditors or claims against other policyholders of the insurance company. Under Cayman Islands law, Bastion, as an exempted carrier, is authorized to create one or more segregated portfolios that permit the segregation of the assets and liabilities of the insurance carrier held within each portfolio from those of both the company itself and other portfolios. Reinsurance is "insurance for insurance companies". It provides a way for a primary insurer to protect against unforeseen or extraordinary losses. Reinsurance serves to limit liability on specific risks, to increase individual insurers' capacity, to share liability when losses overwhelm the primary insurer's resources, and to help insurers stabilize their business in the face of the wide swings in profit and loss margins inherent in the insurance business. It is a transaction between two insurance companies in which one company purchases insurance from the other to cover part or all of the risks that the first company does not wish to retain in full. What is the difference in the fee structure between domestic and offshore insurance? A domestic carrier has a distribution system that consists of large management, regional and district offices, commissions to agents, commissions to managers etc. The internal fees of Bastion are considerably less than the fees of a US or other domestic carrier. Under what jurisdiction is a Bastion Life policy maintained? Bastion is subject to the no-income/company tax jurisdiction of the Cayman Islands, whereas a domestic carrier is subject to subchapter L of the Internal Revenue Code. Is it possible to choose my asset manager if I purchase a Bastion Life Variable Life Insurance policy? Why should a policy be owned by a foreign trust, foreign partnership, or foreign limited liability company? If the policy is owned by a foreign trust, foreign partnership, or foreign limited liability company, the cash value will have much greater protection from the claims of domestic creditors of the policy owner. What is the impact of payment of death benefits to a foreign trust? Death benefits paid to a foreign trust after the death of the U.S. insured can be invested free of U.S. tax to the U.S. beneficiaries until all or some of that income is distributed to the beneficiaries. If I am a US citizen or resident, am I required to pay U.S. Taxes? A 1% Federal Excise Tax of 1% of the premium is payable and the required filing must be undertaken within three months of the payment of an insurance premium to Bastion Life. However, the 2-4% state premium tax is avoided when an offshore policy is purchased. What investments may I entertain as part of a Bastion Life Flexible Premium Variable Life policy? Provided the investment program chosen meets the diversification requirements, the type of investments allowed provides great flexibility with access to worldwide financial markets with international investment offerings such as fixed interest, equities, hedge funds, real estate, private placements and alternative investments. Can Bastion Life provide me with financial advice? No. Bastion Life is not permitted to provide any counsel or advice. Each Bastion Life policyholder must certify that they have obtained independent advice from a professional advisor (attorney, accountant, or registered financial advisor). How can I be confident a Bastion Life policy meets all US legal compliance requirements? Bastion Life’s policy is designed to comply with all relevant US tax laws and the related IRS regulations and rulings. It is important that each intending policyholder has read Bastion life’s Confidential Information Memorandum and has obtained independent professional advice concerning their specific circumstances and requirements. Can a Bastion Life Policyholder obtain multiple loans against a Bastion Life policy? Provided the policy has the required liquidity to comply with the various compliance tests, there is no reason why multiple borrowings cannot take place. Is there any restriction on the use of funds borrowed against the policy? There are a variety of restrictions on the deductibility of interest on different kinds of loans. Professional advice must be obtained from a qualified taxation specialist. Is there any restriction on how borrowed funds from a policy can be utilized? There are a variety of restrictions on the deductibility of interest on different kinds of loans such as using a loan to purchase tax exempt bonds and the restriction on the deduction of investment interest. However, we are not aware of any restrictions on what a taxpayer may do with loan proceeds. What is the difference between a Modified Endowment Contract (“MEC”) and a Non-Modified Endowment Contract (“Non-MEC”)?
If there is the equivalent of seven equal annual instalments, the Policy is considered to be a Non-Modified Endowment Contract If there is less than seven (e.g. Single Premium), the Policy is considered to be a Modified Endowment Contract Modified Endowment Contract (“MEC”)
Non-Modified Endowment Contract (“Non-MEC”) To qualify as a Non-Modified Endowment Contract [Non-MEC] the seven pay test must be met which requires premiums to be paid in equal instalments over a period of seven years. Features of a Non-MEC include:
Does the US Patriot Act have any impact on Bastion Life? The Cayman Islands is a member of the Caribbean Financial Action Task Force (CFATF), which is an organization of thirty states of the Caribbean Basin, which have agreed to implement common countermeasures to address the problem of criminal money laundering. It was established as the result of meetings convened in Aruba in May 1990 and Jamaica in November 1992. In addition, because Bastion is insuring U.S. persons, Bastion is subject to the USA Patriot Act. The CFATF and USA Patriot Act require Bastion to perform certain confidential due diligence on all prospective insured persons that further requires Bastion to meet the Know Your Customer (KYC) rules and anti-money laundering rules. This information remains confidential and in the files of Bastion. What is some of the US and other legislation governing offshore Variable Life Insurance? Legislation includes:
How is the insurance acquired? The applicant, owner and beneficiary of the life insurance is the trustee of a foreign trust [or offshore trust—however you want to state it] or the general partner (generally a foreign trustee) of a foreign limited partnership.
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