International
Variable Life Policy
by Trevor Reynolds
| Trevor
Reynolds is the Managing Director of Banner Overseas Financial Services
which has been helping Expatriates invest since 1979. He has been
living in Japan since 1990 and hails from Canada. Banner Japan K.K.
is an independent financial firm established in 1979 and based in Ebisu,
Tokyo. We consult expatriates living in Japan, Japanese nationals
and international investors on matters of personal financial planning. |
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Additional
Resources
Banner Japan K.K. website 
Investing Overseas
Isle of Man Links
Contact Trevor Reynolds
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| The International Variable Life Policy
(IVLP) has been specifically designed by an Isle of Man Assurance company
(IOMA) as a Modified Endowment Contract (MEC) to meet the offshore life
assurance and investment needs of the high net worth United States taxpayer.
An MEC that satisfies the requirements
of Section 7702 and Section 817(h) of the U.S. Internal Revenue Code 1986
allows the policy holder to obtain significant tax savings on investment
growth over a regular investment or brokerage account. Furthermore,
in the event of death, the Policy will provide a significant death benefit
for your loved ones and heirs, which is variable in line with age, and
the value of the underlying investments held in the Policy.
The minimum Initial Premium is US$100,000
or currency equivalent. Additional premiums of $25,000 or more may
be added at any time. Our competitive charging structure incorporating
a 0% front-end load enables 100% of your investment to begin working for
you from the outset. |
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POLICY STRUCTURE
The IVLP is structured around a Policyholder,
a Life Assured and a Beneficiary. The Policyholder and Beneficiary may
be an individual or other entity, such as a Trust. The Life Assured must
be an individual and remain constant for the duration of the Policy. Each
Policy has an Investment Portfolio specific to it. A death benefit is payable
to the Beneficiary upon the death of the Life Assured, the level of which
is in accordance with the requirements of Section 7702 of the Internal
Revenue Code.
Withdrawals can be made from the Policy
at any time. However, as the Policy should be considered a long-term investment,
charges are levied on surrenders requested within six years of the Policy
issue date. Similarly, if a Policyholder is under the age of 59½,
a further tax
penalty of 10% of the value of the taxable
portion of the surrender will generally become payable under United States
Tax Law.
TAX DEFERRAL
Providing certain regulatory requirements
are met, investment assets within the Policy will accrue completely free
of income and capital gains taxes. Over time the power of compounding
can be enormous, as tax is not levied on the earnings of your original
principal, earnings on earnings, plus earnings on what you would have paid
in taxes!
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SECURITY OF ASSETS
It is a sad fact that we live today in
a highly litigious society. Therefore, it is extremely important
to protect one's assets from frivolous lawsuit attack. As the IVLP is written
under Isle of Man Law, an inherent degree of asset protection is present,
as life policies are, generally, not attachable by creditors in the jurisdiction
of the Isle of Man.
The above will apply provided there are
no existing judgments, evidence of fraudulent conveyance or any type of
criminal activity associated with the policy or premiums paid. Subject
to this caveat, all transactions are made on a completely confidential
basis.
As an added protection, under Isle of Man
Law, all premiums paid to a licensed Company, in relation to life assurance
policies, must be held |
in a 'Long Term Business Fund', segregated
from all other business transacted by the Company. The assets in this fund
are solely for the benefit of the Company's life policy holders and cannot
be used to meet claims from policyholders within other classes of business,
or general creditors in the event of the Company's insolvency.
Furthermore, life policies issued in the
Isle of Man after April 5, 1988, are protected by the Isle of Man Life
Assurance (Compensation of Policyholders) Regulations 1991, which provide
a statutory guarantee equal to 90% of the amount of any liability the Life
Company may have under a contract of Life Assurance. The Isle of Man is
the only offshore jurisdiction to offer such a statutory compensation program
and there is also no upper limit to the amount of compensation.
INVESTMENT OPPORTUNITY
The IVLP is an excellent vehicle for global
investing. Endless ranges of investment opportunities are available, enabling
access to some of the world's finest asset managers. Policyholders can
access all major equity, bond and currency markets.
Once a client's risk/reward profile has
been established, a personalized investment strategy can be formulated
around the requirements of IRS Code Section 817(h) within the Policy to
meet the individual's investment objectives. Section 817(h) requires
that adequate diversification of underlying assets is adhered to. Namely,
no more than 55% of the total value can be represented by any one investment,
no more than 70% by two, 80% by three and 90% by four.
The Policy is flexible, enabling regular
reviews and re-allocation of assets as market conditions fluctuate, and
individual circumstances change over the course of time. Quarterly
valuations are available shortly after the end of March, June, September
and December. Our valuations clearly illustrate the cost and value of all
investments held, along with details of all transactions made within the
relevant quarter.
Questions &
Answers
| Q. What are the advantages of the International
Variable Life Policy over a policy issued by a U.S. domiciled insurance
company?
A. IOMA is not subject to any form of taxation
on Policyholder funds. Also, premium taxes are not payable in the Isle
of Man. IOMA offers a high level of privacy. There are no reporting
requirements to any authorities outside the Isle of Man. Distributions
from the Policy are not taxable in the Isle of Man. The Policy also offers
a much wider range of investment options than a domestic equivalent.
Q. How secure are my funds with Isle of
Man Assurance Limited?
A. Under Isle of Man law, all premiums
paid to a life insurance company under a life assurance policy must be
held in a "Long Term Business Fund", segregated from all other business
transacted by the Company. The assets under this fund are solely for the
benefit of the Company's Life Policyholders and cannot be used to meet
claims from Policyholders within other classes of business or general creditors,
in the event of the Company's insolvency. The Isle of Man Life Assurance
(Compensation of Policyholders) Regulations 1991 provide a statutory guarantee
equal to 90% of the amount of any liability of the insurance company under
any life policy.
Q. Is my Policy protected against creditors?
A. Any claim by creditors of the Policyholder
can only be made through the courts in the Isle of Man.
Q. What are my investment options?
A. You may choose between any of our listed
Investment Funds or you may request IOMA to appoint an Approved Independent
Investment Manager to manage your account. IOMA will provide a list of
Approved Independent Investment Managers upon request. In the event that
a Policyholder requests us to appoint an Independent Investment Manager,
we require the Manager and the Policyholder to observe guidelines set out
in certain IRS Revenue Rulings. Accordingly, we will work with the Policyholder
to settle on an investment strategy. That strategy will be provided to
the Investment Manager appointed by IOMA. Once the Policy has been issued,
the Investment Manager is expected not to communicate with, or accept any
directions from the Policyholder about investment strategies. If the IRS
guidelines are not observed, the Policyholder could be treated as the owner
of the assets underlying the Policy for US tax purposes.
Q. Can I "Self Direct" the investments
in my Policy?
A. No. You may choose the allocation of
your investment within our Funds, or you may appoint an Approved Independent
Investment Manager. You may not directly control the investment aspect
of your Policy on a regular basis.
Q. How often can I switch between your
Funds and what does it cost?
A. You may switch between our Funds on
a monthly basis at your discretion without charge.
Q. What are my reporting requirements to
the I.R.S?
A. Income credited to life assurance contracts
is not generally includable as income under individual tax returns. As
long as the Policy is in place, all increases in the value of the underlying
investments, interest and divided income will be free of U.S. income tax.
You should consult your professional advisor who will be able to help you
with your own personal tax situation.
Q. Is there any tax payable in the Isle
of Man?
A. No.
Q. What about Federal Excise Tax?
A. The United States Government imposes
an excise tax of 1% of the value of premiums paid by a U.S. taxpayer to
a foreign insurer. Form 720 should be obtained and filed with the Internal
Revenue Service to report and pay this tax.
Q. How often do I receive valuations of
my Policy?
A. We provide quarterly valuations for
our Policyholders. These summarize the investments and transactions within
the Policy and are available shortly after the end of March, June, September
and December.
Q. Am I required to keep the Policy in
place for a certain period of time?
A. No. You may make a partial or total
surrender from your Policy at any time. However, a charge may be levied
on the value of the surrender in line with the enclosed Fee Schedule. A
U.S. Income tax and an additional tax penalty may be imposed in certain
circumstances. |
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Minimum Investment
USD $100,000 (or currency equivalent)
Initial Fee 0%
Annual Administration
and Management Fee
1.50% of market value (charged
quarterly)
Policy Establishment
Charge
Year 1 1.5% per annum of initial premium
or market value,
Year 2 0.5% whichever is greater (charged
quarterly)
Year 3 0.5%
Year 4 0.5%
Year 5 0.5%
Additional Charge
for death benefit
Variable Costs
based on age, sex, health and smoker/non-smoker status of Life Assured.
Example: 50 year old male non
smoker in good health for $100k policy would be approx. $200 per annum
(An exact quotation is available upon examination of medical information)
Early Surrender Charges
Year 1: 6.0%
Year 2: 4.8%
Year 3: 3.6%
Year 4: 2.4%
Year 5: 1.2%
Year 6 and thereafter: NIL
Surrender charges are based
on the Issue Date of the Policy, the date of receipt at the offices of
IOMA of the request to surrender and are on a calendar year basis, calculated
on the value of the surrender.
FEDERAL EXCISE TAX
Federal Excise Tax of 1% is imposed by
the United States Government on premiums paid into policies issued by foreign
insurers and Form 720 should be filed with the Internal Revenue Service.
If there is any doubt about the payment of Excise Tax you should consult
your tax adviser. |
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