The following post is from American-expat correspondent in Chile, Dr. John Cobin:
Chile is arguably the overall best place in the world for most people to live. But that fact does not mean that Chile is the best place to keep the majority of their assets. Indeed, many other places are better-suited for that task: Singapore, Guernsey, Jersey, Labuan, Liechtenstein, Abu Dhabi and Andorra, just to name a few.
The most widely-known financial instrument that Chile has going for it is the Chilean peso, which is about as solid as it gets for a fiat currency. Further, peso accounts can be denominated in Unidades de Fomento (UFs) which, in short, is an inflation-proof quasi-currency based on the peso.
Chilean stocks have also doubled in the last two years and a mutual fund or brokerage account has been a good friend to those who have had one. The biggest problem with UF and fund accounts for foreigners is that one must have a visa (and national ID card/number) to open them. When one can qualify for these accounts, he can realize some significant financial benefits.
However, there is also another Chilean product that should be in the limelight: life insurance. On account of very favorable legislation in Chile, a person with a visa can profit handsomely in Chilean or global stocks through a variable universal life contract. Why should one consider such a product?
1. No death tax (which is otherwise as much as 25% in Chile);
2. No capital gains or income taxes on your profits;
3. Lawsuit and judgment proof (including divorce decrees for alimony or child support);
4. Face amount and death or disability benefit is stated in inflation-proof UFs;
5. Face amount is payable to the insured prior to death for total disability;
6. Face amount and death or disability benefit increase with the amount of investment and are always significantly greater than the policy’s cash value;
7. Policies can be overfunded with unlimited amounts of cash, without fear of “modified endowment contract” conversion like in the USA (meaning that, for example, one can buy a UF2,000 policy–US$90,000 face amount equivalent–with a annual premium equivalent of US$4,000, and dump in an extra US$100,000 equivalent every year without losing the legal protections and tax advantages of life insurance;
8. Overfunded policies have surrender penalties but illustrations at assumed growth rates of around 10% show that the full investment (and more) can be recouped by the second year of the policy, making the investment medium rather than long term in nature, with larger additional contributions making the surrender penalty problem much less significant.
Imagine writing a check representing nearly all the value of your estate to the life insurer upon news of a terminal illness, immediately transforming your estate into a tax free benefit. All your money would be protected in your VUL contract. With a little more creative thought, you can probably think of other valuable uses for this product.
I have worked in the financial services industry for over 15 years and this product is unparalleled in the USA. The eight benefits listed above are simply tremendous. And property rights are secure in Chile. For that reason, as part of my services to expatriates, along with buying Chilean gold coins and real estate, I help them set up overfunded life insurance accounts. In January, we will be announcing a special visa program for wealthier clients which includes quick access to life insurance, UF, mutual fund and brokerage accounts as part of the service.
Dr. Cobin’s book, Life in Chile: A Former American’s Guide for Newcomers, is the most comprehensive treatise on Chilean life ever written, designed to help newcomers get settled in Chile. He covers almost ever topic imaginable for immigrants. This knowledge is applied in his valet consulting service, where he guides expatriates through the process of finding a place to live and settle in Chile, helping them glide over the speed bumps that they would otherwise face in getting their visas, setting up businesses, buying real estate, investing in Chilean stocks or gold coins, etc.