Investors in the retail and mass affluent wealth segments in Asia have long embraced the use of investment linked life insurance, but this has so far rarely taken up by high net worth investors.

This is partly because less affluent investors do not usually get access to the flexible custody platform and execution capabilities provided by private banks, and have therefore used life insurance “wraps” to hold and transact their investments.

But wealthy investors and their advisors are starting to appreciate that life insurance can also provide considerable benefits at the high end of the market. And life insurance companies have created specific products and fee schedules to accommodate this. By combining a life insurance policy with a private banking custody account and asset management capabilities, private clients can reap considerable rewards.

How does this work?

The life insurance company will open an account with a private bank of the client’s choice. The client will transfer cash or assets to the life insurance company as payment of premium, and the life company will issue a policy to the client. The life company will then transfer the cash and assets to the private bank for management. The life insurance company will be the owner of the private bank account, and the beneficial owner of the assets. The client will be the owner of a life insurance policy the value of which is linked to those assets.

What are the benefits?

Unlike trusts and foundations, which have their roots in fundamentally different legal systems, and which are increasingly viewed with suspicion by tax authorities, life insurance is globally recognized and widely understood. Every major jurisdiction has rules governing life insurance, and a system for taxation of life insurance. The skill, as in all planning, is to understand those rules and how they can be applied to given situations to achieve optimal benefit.

Asian investors are renowned for a high need for control. The owner of a typical life insurance policy can choose when to add assets and when to withdraw assets from the structure. He can determine where the assets are to be held, and how they are to be managed. He can nominate and change beneficiaries as he chooses, and no beneficiary has a right to information, accounts, or any reporting - only to receive payment on the death of the final life assured. The policy owner can nominate and change beneficiaries as he wishes, without any requirement for their signature, knowledge, or consent.

A policy can be owned by one or more individuals, by a company, or by any one of a number of legal arrangements. A policy can have multiple lives assured to give it maximum duration. And beneficiaries can be individuals, companies, foundations, trustees, and, again, a host of structures and arrangements.

In addition to the succession planning benefits, life insurance can also provide other significant advantages. In certain jurisdictions life insurance is protected from creditors in the event of bankruptcy, from claims of a spouse in the event of divorce, and from other claims. In many countries the income and gains arising from the assets held within a policy are free of all taxation. Proceeds of life insurance are often free of tax, or taxed at reduced rates. And in most civil law countries the proceeds of life insurance are not considered part of one’s estate, and will therefore avoid forced heirship provisions.