Insuring foreign nationals: Changes in underwriting criteria create new planning opportunities

By Ron Roth

M&M Life Brokerage

​Acquiring life insurance for foreign nationals has always been a difficult segment of the market. This is especially true for those who do not reside in the United States. As our economy continues to grow into one that is global in nature, we come into contact with individuals from all over the world who need our help. Until recently, insuring these clients has been a daunting task, especially for individuals who are “nonresident aliens." The marketing is changing, however, and some insurance carriers are recognizing the potential of this market and are taking a more global approach to underwriting life insurance for these individuals.

As it applies to the federal gift and estate tax regulations, the key is residency status. The United States levies the same transfer taxes on resident aliens as it does on U.S. citizens. For nonresident aliens, taxes are imposed at the regular estate tax rates, but only on their U.S. estate — real property owned in the United States and tangible personal property located within the country.

The major problem for these clients is the amount of the estate tax exclusion amounts. While resident aliens can make use of the $5.12 million applicable exclusion amount (for 2012), nonresident aliens only enjoy a $13,000 lifetime estate tax credit, which equals an exclusion amount of approximately $60,000 (for 2012) in U.S.-based assets. Also significantly affected are spousal gifts and transfers. Gifts to a spouse who is a U.S. citizen fall under the “unlimited marital deduction” and are not taxable. However, tax-free gifts to a noncitizen spouse are limited to an annual marital gift tax exclusion of $139,000.

So, how do we help our clients and potential clients who are foreign nationals minimize or fund for these future tax liabilities? One strong strategy for estate tax planning has always been the use of life insurance. The problem has been issuing policies on foreign nationals, especially those who do not live in the U.S. I can help you solve this problem.

Recently, a select few of our carriers decided to embrace the global nature of today’s business environment and will consider these individuals for life insurance benefits. In many cases involving foreign nationals (either residing or not residing in the United States) we can:
    1. Offer up to $10 million of life insurance coverage.
    2. Complete the medical exam outside of the United States.
    3. Assist with the complex planning components of insuring resident on non-resident aliens.
Most importantly, these clients have never needed your help more. Recent changes to the gift and estate tax treatment of foreign nationals with assets held in the United States has placed an onerous potential estate tax on these assets. By helping these clients plan and fund for these taxes, you can play an integral role in their planning process.

See also: Estate taxes and foreign nationals: ignorance is no excuse

Foreign nationals who want to accumulate and protect wealth, transfer assets to the next generation and minimize transfer taxes must work with the proper advisors. They need professionals who understand the laws governing non-U.S. citizens, who know how to avoid pitfalls and who make use of the very best planning techniques for the affluent members of this ever-growing group.