The Role of Insurance Protection

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, including:

(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

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 which maintains tax efficiency for US persons and requires minimal tax reporting. Having the flexibility to examine various solutions will help ensure an optimal solution based on your personal circumstances.

For more wealth planning tips and tidbits from MASECO read our 39 Steps to Smart Living in the UK.

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 individual users. 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.

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