Thank you for your question, a very important and good question.
The short answer is yes, you can buy offshore insurance products. Currently, most are administered by offshore companies which most South African advisers are not permitted to sell. However, there is a South African insurer* that has developed a range of solutions to meet this need, and other insurers are expected to follow. In addition to life cover, you can also take out disability and critical illness cover. Most of the processes are the same as buying local insurance, such as underwriting, premium collection and administration, with a few minor changes to consider.
Your benefits are denominated in US dollars and increase with the rate of US inflation. The main benefit is that, upon request, funds will be paid from Guernsey to an offshore bank account in a country authorized by Guernsey Financial Services and do not have to be repatriated to South Africa. The value of the benefit is therefore not exposed to currency risk through a potentially significant depreciation of the rand.
You/your beneficiaries can, however, opt to have the benefits repatriated to South Africa if you wish, but there may be risks associated with the conversion of funds, such as currency exchange fluctuations and bank charges.
Your premiums are also denominated in US dollars and can be paid by you in rand (debited monthly or annually) or to a US dollar denominated account (only paid annually). The rand amount determined to calculate the premium in US dollars is used by the forward exchange rate and is obtained via Bloomberg.
It is important to remember that the premiums paid for offshore policies are included in an individual’s annual one-time discretionary allowance (SDA) of R1 million. No tax receipt is required if this amount is not exceeded.
If exceeded, it will form part of an individual’s foreign investment allowance of R10 million and a tax clearance certificate will be required. Payments of these bonuses are reported to Sars on behalf of the client, but it is the client’s responsibility to ensure that their SDA is not exceeded.
South African residents living abroad can also take out offshore insurance, as can South Africans living permanently abroad – but they will need to prove their previous connection to South Africa via an identity document green South African barcoded card and a South African passport.
Offshore life cover can also serve a variety of other purposes: for policies such as commercial insurance, namely buying and selling; contingent liability; loan account protection; and key person coverage, which must be carefully structured with a professional.
As with local life insurance, it is always advisable to consult a financial adviser when considering life insurance to build a solution that best suits your personal and business needs.
* This insurer is Discovery Life.