Have you ever heard of “Private Banking Insurance?” Probably not, and I fully understand that many peoples' eyes glaze over when anyone starts talking about insurance. But this is nonetheless a concept you should be aware of, as it's possibly the best way to achieve a fully compliant offshore investment strategy, especially for US citizens. We decided that the time was right to run a short introductory article explaining this concept. If you would like to find out more, we can refer you to relevant experts.
Basically, the first thing you need to get your head around is that this is first and foremost an investment vehicle. It is not like buying regular life insurance. It is more comparable to a trust arrangement, where an insurance company becomes a 'trustee' for your assets, managing them according to your instructions and segregated from its main balance sheet. That way, although you no longer 'own' the assets, you can dictate the investment strategy.
This type of investment is aimed directly at high net worth individuals. The set up costs do not make it worthwhile under about a quarter of a million. The benefits, however, are very attractive.
First, there is tax mitigation. In most jurisdictions, this kind of structure is tax-deferred, meaning that for as long as your assets are invested within the structure, no income taxes, capital gains taxes or withholding taxes will apply. With proper planning, additional tax benefits can be achieved. Depending on your tax domicile, estate taxes, gift taxes or value added taxes can be avoided in compliance with the law. For example, in jurisdictions like Germany, Sweden, the United Kingdom, or South Africa, these products benefit from considerable tax advantages.
Second, there is asset protection. Solid protection from creditors and frivolous lawsuits is provided. The policy is a contract; it cannot be taken away except by agreement with the insurance company.
The concept allows for multi-jurisdictional structuring. In terms of asset protection and privacy, a multi-jurisdictional structure can be very powerful in protecting one's assets from plaintiffs and creditors. Contrary to the convoluted and expensive corporate and trust structures employed traditionally in the offshore world, the advantages of multiple jurisdictions can be integrated within one single insurance contract.
For example, the client may be a resident of Germany or the United Kingdom. The insurance company will be domiciled in Liechtenstein. The bank and asset manager may be in Switzerland. Depending on the preferences and objectives of a client, this structural flexibility facilitates truly tailored solutions.
Minimizing counter-party risk is perhaps the most important consideration when setting up any investment vehicle in today's climate. This structure provides for multiple checks and balances. Contrary to offshore trusts, where you are required to entrust your affairs entirely in the hands of a trustee, the insurance 'wrapper' integrates the services of three institutional parties: the insurer, the custodian bank and, generally, a professional asset manager. All your funds are segregated and are not on the balance sheets of any of these three entities. And, you can pick and choose these three entities yourself. This creates a high level of institutional security.
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