(photo credit: INGIMAGE)
We live in very dynamic times, when the economic and social environments are changing constantly. People have always wanted stability in general and economic stability in particular. Stability means finding ways to protect oneself against undesirable eventualities. One of the tools that will ensure economic stability, at least for one’s family, is a life insurance policy.
Upon the demise of the policy holder, a sum of money is paid to whoever has been designated as the benefactor. In most cases, it is the spouse and offspring. This holds true in most countries. However, compared to other countries, primarily the US, Israel’s insurance industry has its limitations in terms of pricing and product availability.
In the not so distant past, it was very difficult for someone residing in Israel to take out, say, an American life insurance policy because no US-based life insurance carrier would write a policy for an Israeli resident. Today, several top-rated US insurance companies will underwrite their best products, at their best prices, for Israeli residents.
Taking out a US-based life insurance policy has many advantages. Jonathan Spetner is a third-generation life insurance broker based in St. Louis, Missouri, who has pioneered the sale of US life insurance policies to Israeli residents. He explains, ”Taking out US-based life insurance can be very cost-effective, especially for certain age categories. Once one is over 40, the disparity in cost between the US and Israel on term/risk coverage becomes very apparent. Current Israeli risk insurance products don’t allow for more than a five-year level premium, so costs are constantly rising. US carriers guarantee level premiums from 10 years all the way to 30 years. That means the cost is guaranteed not to increase for the number of years one chooses. The savings can be very significant. For example, with a US-based policy, a healthy 50-year-old male who is a non-smoker can qualify for a $1 million death benefit for an annual cost of $1,385, guaranteed to remain level for 15 years. The Israeli carrier equivalent would cost about $2,790 for the first year, with the premium increasing each year. By the 15th year, the Israeli policy would cost an annual $13,920. As one can see, the difference is glaring.”
Taking out a US-based insurance policy has other advantages as well. Currently, it is impossible to buy a permanent life insurance policy In Israel – i.e., a policy guaranteed to last for a lifetime. However, when buying US-based life insurance, one can choose a temporary or a permanent policy. As Spetner points out, they have their advantages and disadvantages according to need.
“A temporary life insurance policy provides coverage for a specified period of time, such as 10 to 30 years.
It is much less expensive than permanent life insurance because it will guarantee payment for only a specified number of years. A permanent life insurance policy on the other hand is designed to last a lifetime and will definitely pay off,” he says.
He adds that in some cases, a temporary life insurance policy may be very suitable. For example, to ensure repayment of a loan or mortgage in the case of the demise of the bread winner. Or to provide payment in the event of the death of a key employee of one’s business. This temporary policy can be made to expire when the key employee reaches retirement age.
When asked what is preferable, Spetner gives the following answer: “A term insurance policy is less expensive, but it is designed to end before one dies. A permanent policy is more costly but is designed to pay when one departs this world no matter when. I advise my clients to decide what to choose by answering the following question:
‘How much death benefit do you think you want for how many years?’ The answer can vary, as people require different levels of death benefits according to their age. For them, I can help structure ‘layered’ policies to answer their needs.”
A US-based life insurance policy also has certain tax benefits. This holds true for non-American nationals, who do not hold residency permits, with tangible assets in the US. As Spetner explains, “At times, there is a permanent need for cash liquidity at death. A perfect example of a permanent life insurance need is paying the steep US inheritance tax that is due on all tangible assets owned at the time of death. Currently in the US, the tax affects only affluent US citizens and residents. They are entitled to approximately $11.4 million of exclusion on assets before the tax is assessed. A non-US citizen/resident has a much different situation. Non-resident aliens who have tangible assets in the US receive only a $60,000 exclusion before the inheritance tax is levied. Tangible assets include real estate, US stocks, ownership of US-based business interests, etc. To illustrate the severity of the tax, here is an example. A non-resident alien who buys real estate in New York City for $2.5 million and dies a few months later will have a tax levy of 40% of the market value of the property. That adds up to $1 million due in cash to the IRS. Life insurance is the perfect solution for such a potential liability. The event that creates the need (death) creates the cash. Life insurance doesn’t eliminate the inheritance tax, but it makes cash available to pay the tax.”
Whether there is a temporary or a permanent need for cash liquidity upon the demise of the insured, access to US-dollar life insurance can make protecting one’s family and/or business a very affordable proposition. The proceeds of a life insurance policy, whether in Israel or the US, are income tax-free.
For Further information: spetner.co.il
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