The Role Of Insurance Protection Within Your Wealth Plan
Your wealth plan represents a portrait of your life incorporating a collection of the goals and objectives that are most important to you. It is a picture that can only be seen when you complete the puzzle and fit all of the pieces together. Many people do not appropriately value the role that insurance plays within their wealth plan. But, within the wealth planning jigsaw, insurance is a piece that needs proper consideration to create a whole and complete picture.
Insurance protection is hardly a glamorous purchase and generally people will avoid the topics of illness and death. However, ensuring you have decent protection for you and your dependents is a must. Insurance protection is important no matter your employment, life stage, or the number of children you may have.
Well-structured protection can offer you and your family many advantages. Proper planning can provide your beneficiaries with a tax-free death benefit that will alleviate future financial concerns. Protection can also provide a vehicle to accumulate additional funds on a tax-efficient basis. Most importantly, insurance protection can allow you to prudently and effectively manage the financial risks to which you may be exposed in the event of an untimely accident, illness or death.
Managing several key risks can help ensure financial stability, both now and in the future. These key risks, whilst not exhaustive, include:
(1) Payment of estate/inheritance taxes. Sometimes families have enough assets to fund their future needs but do not take into account potential erosion of their estate that can arise from inheritance taxes. Protection can help you maximise your estate for your heirs.
(2) Loss of income. A survivor’s income stream may not be sufficient to provide the family with enough security if the primary earner ’s income is lost. Protection can safeguard your family’s current lifestyle if your income suddenly changes due to premature death or illness.
(3) Repayment of liabilities. Many families carry mortgage debt or other ongoing liabilities throughout a good portion of their lives. Protection creates a vehicle that can repay any outstanding individual or business related liabilities in the event of a premature death.
(4) Fund future lump sum goals. Many families use their expected income stream to make plans to fund a lump sum goal such as paying for a child’s education. Protection allows you to ensure lump sum goals are still able to be funded in the manner you planned.
Other important areas of consideration when assessing the type and amount of protection needed by an individual and their family include:
• Business continuity needs
• The impact of having a US beneficiary on planning strategies
• Multi-jurisdictional tax planning – the impact of a US person being subject to UK Inheritance Tax for a period of time
• Investment diversification and management
• Charitable giving.
As with other aspects of your wealth plan, protection requirements need to be reviewed periodically as life’s inevitable changes often impact a family’s needs. Some common events that may trigger a review of your protection portfolio include:
• Change in citizenship or tax residency
• The purchase of your first home or scaling up to a new home
• Acquiring new personal or business debts
• Getting married or entering into a civil partnership
• Having your first child or additional children
• Changes in the amount of household income
• Moving from an employed role to a self- employed role
• Retirement
• Becoming someone else’s dependent.
Many of these changes take up an individual’s time and energy and it is therefore easy to delay revisiting your protection planning needs. However, too many unexpected events show us how important it is to not let too much time go by before addressing any required changes in strategy.
Onshore Versus Offshore Insurance Protection
An insurance solution that is considered to be onshore or offshore for US purposes may be appropriate depending on your net worth, current tax residency, planned future tax residency and overall wealth goals and objectives. In some situations, it may make sense for a US person to take out an offshore policy to facilitate a suitable, tax-efficient estate planning strategy from a US perspective.
An onshore versus offshore policy is ultimately used to achieve different goals. Each have different investment choices and fee structures, but it is possible to find both onshore and offshore solutions facilitated through insurance specialists that are US compliant structures. Using a US compliant structure will ensure that tax-efficiency is maintained for US persons and minimal tax reporting is required. Having the flexibility to examine various solutions will help ensure an optimal solution based on personal circumstances.
When considering your protection needs, you should carefully analyse various aspects of your personal circumstances within the context of your comprehensive wealth plan. Once you fully understand all aspects of your situation along with your financial needs and objectives you can then structure solutions to meet those needs in the most efficient manner. Over time, any changes to your personal or financial circumstances should be taken into consideration to evaluate any required modifications to your protection planning. The goal is to ensure that the picture your wealth plan reveals represents a portrait of your ideal life.
Risk Warnings And Important Information
The value of investments can fall as well as rise. You may not get back what you invest.
The above article does not take into account the specific goals or requirements of individuals and is not to be construed as advice. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy.
MASECO LLP trading as MASECO Private Wealth is authorised and regulated by the Financial Conduct Authority, the Financial Conduct Authority does not regulate tax advice. MASECO Private Wealth is not a tax specialist. We strongly recommend that every client seeks their own tax advice prior to acting on any of the strategies described in this document.
Andrea Solana is Head of Advanced Planning at MASECO Private Wealth where she helps to provide financial planning and wealth structuring advisory services to US expatriates in the UK and British nationals in the US. Andrea spent the first 9 years of her career with a well-known Washington DC based international tax and global wealth management firm where she gained considerable experience advising high net worth individuals with multi-jurisdictional financial interests to design and implement strategies for tax-efficient and risk-managed asset growth. She has written numerous white papers regarding fundamental financial planning and investment strategies for US connected individuals and has previously been a speaker on financial planning topics at numerous places including both The World Bank and International Monetary Fund (IMF).
Andrea graduated from University of Virginia’s McIntire School of Commerce with a degree in Finance and Management and completed her MBA at Imperial College London. Andrea holds her UK Investment Advice Diploma and US Series 65 license.
Website: masecopw.com