Investing in an international life assurance product offers significant benefits for Australians, including tax efficiency, investment diversification, and asset protection. These products can be funded through regular savings or a lump sum investment, making them a flexible addition to a comprehensive financial strategy. In this article, I will highlight the key benefits of these products to help you understand their advantages and how they can enhance your financial planning.
Tax Efficiency
International life assurance products are often structured in jurisdictions with favourable tax regimes, allowing for tax-free growth and income on investments within the life assurance wrapper, thereby enhancing the overall return on investment. While Australian life assurance products include a 10-year capital gains tax-free benefit, the income is taxed at 30%, paid by the insurance company (source: ATO). The tax efficiency of these international products remains in place even if an Australian expat becomes an Australian tax resident during the investment’s lifespan. This makes international life assurance products particularly appealing for those who may move between countries but want to maintain their investment’s tax advantages.
Investment Diversification
International life assurance products typically offer access to a broad range of global investment opportunities in currencies not readily available in the Australian market. Diversification across different geographic regions and asset types can mitigate risks and enhance potential returns. For example, an international portfolio might include emerging market equities, global bonds, or alternative assets such as real estate or commodities, providing a more balanced risk-return profile than a domestically focused portfolio.
Asset Protection
International life assurance policies can provide a level of asset protection, governed by the laws of the jurisdiction in which they are held, which may offer strong protection against creditors. These products can be assigned directly to a beneficiary outside of the estate process, which in Australia usually takes a minimum of six months. This means that upon the policyholder’s death, the beneficiaries can access the funds more quickly and efficiently, without the potential complications and delays of probate.
Disadvantages
To maintain its full tax-free status with the ATO, the investment must be held for a full 10 years. Early withdrawals are possible but will result in the loss of tax-advantaged status.
In summary, an international life assurance product can serve as a powerful tool for Australian investors, offering tax advantages, investment diversification, and asset protection. Byincorporating such a product into their financial strategy, investors can enhance their ability to grow and protect their wealth over the long term. These products are especially beneficial for those who are likely to move between countries but wish to maintain a stable and advantageous investment strategy.
Key Takeaways
- Favourable Tax Regimes: Benefit from tax-free growth and income.
- Global Investment Opportunities: Access a diverse range of assets and currencies.
- Strong Asset Protection: Laws of the jurisdiction provide robust protection against creditors.
- Efficient Estate Planning: Direct beneficiary assignment bypasses lengthy probate processes.
- Commitment Required: Full tax benefits require a 10-year holding period; early withdrawals result in loss of tax benefit.
By understanding these benefits and requirements, Australian investors can make informed decisions about integrating international life assurance products into their financial plans.
Author
Michael Stetson holds a Diploma, Advanced Diploma, and master’s degree in financial planning. With 15 years of experience as a financial planner in Australia, including six years with Perpetual Trustees, he brings a wealth of expertise to his current role at Winson Capital in Bangkok. For inquiries about these or other financial products, please contact him at [email protected].
