Advisor, specialist in cross-border issues, outlines why insurance needs to be considered in any cross-border plans
Clients with cross-border lifestyles add complexity for advisors. Tax considerations, income streams, currency conversions, there are a host of challenges an advisors needs to overcome when their Canadian client decides to become a snowbird or move to the US for work. One area that can often be riddled with missed questions and false assumptions is insurance. Advisors and clients alike regularly forget to talk about insurance and worst-case scenarios when making plans for a cross-border move.
Darren Coleman is careful not to assume anything. The senior portfolio manager, private client group of Portage Cross Border Wealth Management of Raymond James explains that he takes clients through two sets of insurance considerations. The first consideration is obvious, but often more complex than clients expect: health insurance. The second consideration is more long-term – dealing with issues of life and disability insurance, income replacement and survivor benefits. In both cases Coleman believes it’s prudent for advisors to cover as many bases as they possibly can.
“When we say insurance, everybody lumps these two areas together, but we have to say no, there are a variety of different coverages for different risks,” Coleman says. “I think as the advisor we need to talk to clients about covering all of these considerations in some way, because the issue the person thinks about may not actually be the thing that gets them, that’s how risk tends to work.”
Cross-border health insurance
The conversation around health insurance begins in a relatively straightforward place. Coleman notes that most Canadians have a strong sense of the difference between the US and Canadian healthcare systems and the need for some kind of insurance for any long-term stay. Cautionary tales of Canadians hospitalized in the US facing bankruptcy from their medical bills are enough to motivate many clients to secure coverage.
Often, however, clients will still choose a cheaper option for their US insurance, especially if it’s their first extended stay south of the border. Coleman notes the example of one Canadian woman undergoing cancer treatment who was hospitalized in the US with insurance. Because her cancer was a preexisting condition, however, her insurance refused to pay and she was left with a massive bill.
Coleman doesn’t sell US health insurance in his practice. He refers out to insurance specialists capable to talking clients through the difficult considerations and fine print behind certain policies. Many of his seasoned snowbird clients have already done their research and are well insured. Coleman says that it’s the first-timers and clients taking shorter trips to try out a cross-border lifestyle at the most risk of a health insurance related catastrophe.
Income replacement and survivor benefits for cross-border Canadians
Coleman’s practice does provide insurance policies that cover life and disability, helping to provide income replacements and survivor benefits for his clients. Similar to health insurance, that process begins with a comprehensive audit of his clients’ coverages and gaps. Taxes make these products all the more complex.
Canadian tax is based on residency, while US tax is based on citizenship. This difference causes challenges because certain insurance products are designed to have a savings or investment component built into them. But some of those strategies which might work on the Canadian side don’t work on the US side, or vice-versa. Those differences can cause considerable issues for clients.
Many advisors make the mistake of assuming that their client has the same tax status as they do, Coleman says. A Canadian advisor or agent might not ask their client if they’re an American taxpayer. They may not even know that many Canadian residents with US tax status still have to file a US tax return. What may be tax deferred in one country, too, might not be in the other.
Coleman cites the example of a lawyer he was speaking too recently about redoing his own will. “Ten minutes into the conversation I asked her, ‘are you going to ask me if I’m an American tax filer?’ And she says, ‘does that matter?’” Coleman says, “I thought, oh my gosh, you’re a lawyer and you didn’t even know to ask me that question.”
Advisors’ advantage with cross-border insurance
Once an advisor has a handle on cross-border insurance considerations, they can use it to solve significant problems for their clients. Coleman recalls one Canadian client with a property in the US. They knew that when the property was transferred to his children it would generate a significant capital gains tax bill that they might not have the cash on hand to pay. Because that client was Canadian, Coleman was able to get him a Canadian based life insurance policy that would pay out directly to his family in a matter of weeks, so when the IRS came to them with a bill for the property inheritance, they were able to pay it with their insurance payout.
As advisors’ clients pursue cross-border lifestyles or even dip their toes into more US travel, Coleman believes the prudent approach is for an advisor to be as diligent and process-oriented as possible.
“The first thing is having clarity on what exactly is the client situation,” Coleman says. “What’s their tax status, where are they going to be residing, how long will they be gone for. If they’re buying travel or medical insurance, do they have any preexisting conditions, should they seek out a more specialized policy. I think having that clarity on the client’s situation is really important, so advisors can make sure the client gets access to the right information and resources so they make the proper decision.”
