How to protect your wealth with Luxembourg unit-linked life insurance

This article is also available in Spanish here.
PDF also available in English - Spanish.

Wealth preservation is one of today’s most significant concerns for high net worth individuals.  It should not only involve planning for the distribution of financial assets and diversifying investments, but it should also include wealth preservation and asset protection to help maintain financial security.  With the proper solution in place, a client can feel more comfortable about his/her long term financial future no matter what happens.

Based in Luxembourg, with one of the strongest policyholder protection regimes in Europe, Lombard International Assurance specializes in designing wealth structuring solutions based on a flexible yet secure life insurance contract.  The solution we offer our European clients is adapted to meet the legal requirements of and to benefit from all possible legal and tax advantages available to foreign life insurance in their country of residence (personal income tax deferral; smooth transfer of insurance proceeds to appointed beneficiaries, avoiding lengthy probate procedures; etc.) And in all cases the assets held within the life insurance contract are protected (i) against potential failure of the insurance company or the bank and (ii) against seizure by third parties e.g. potential future clients’ creditors.
 
Thanks to Luxembourg’s unique policyholder protection regime, the Grand Duchy offers maximum security through a State controlled policyholder protection regime that ensures the legal separation of policyholders’ assets from the insurance company’s shareholders and creditors.  Furthermore, the policyholders’ assets are held by an independent custodian bank that is required to “ring fence” the assets and is bound by the regulator’s legal powers to protect the assets on behalf of the policyholders.  If the custodian bank or insurance company should fail, such securities remain in segregated policy accounts and are protected for the benefit of the owners and beneficiaries of the life policies.  This policyholder protection regime is known as the “Luxembourgish Triangle of Security”.  This legal shield, linked to the fact that Lombard International Assurance exclusively issues unit-linked (not guaranteed) life insurance policies, protects clients against situations where adverse investment markets impair the insurer’s liability to meet its obligations vis-à-vis policyholders.  This is key for private clients, as insurers that offer other types of insurance businesses carry this potential risk (i.e., non-linked business where the investment risk is borne by the insurer may very well undermine the insurer’s solvency capacity vis-à-vis the policyholders of the unit-linked business).
 
Moreover, the assets under a life policy are protected against seizure by any creditors of the policyholder (e.g., as a consequence of bankruptcy of the client, public receivables payable by him/her or, in general, a legal claim based on the client’s personal or professional liability).  In this sense, Article 88 of the Spanish Insurance Contract Law −applicable in the case of policies subject to Spanish Law distributed to Spanish-resident clients− clearly establishes that “Life assurance proceeds must be paid to the beneficiary according to the contract, even against claims from legitimate heirs or creditors of any kind”. And Spanish bankruptcy proceedings have maintained unit-linked life policies (which had not been previously pledged) are unseizable and are not part of the bankruptcy assets distributable amongst creditors, reserving these exclusively for the benefit of those appointed as beneficiaries.
 
On top, Luxembourg Law provides protection in line with the foregoing. If for any reason a foreign Court could decide to seize a policyholder’s claim against the insurance company for his/her life policy, effective access to the value under the policy could only take place if the policyholder allowed it.  Article 114 of the Luxembourg Law on the Insurance Contract clearly establishes that the right to partially or fully surrender a life policy is exclusively of the policyholder; and creditors cannot possibly force a policyholder to exercise it.  In other words, creditors will not receive any payment as long as the policyholder does not freely decide to exercise his/her right to claim that value back.  The only exception to this would be in the case that the premium paid by the policyholder represents an exaggerated portion of his/her wealth or the policy was set up fraudulently (for example, after the policyholder knew of ascertainable creditors).
 
In sum, the clients’ wealth within a Lombard Intl. Assurance life policy is secured in a life insurance policy in Luxembourg, protected against the potential failure of the insurer and/or the custodian bank and against potential claims of future creditors of the client.
 
For further information, please contact your usual Lombard International Assurance representative.

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Pablo Peciña Associate Director, Wealth Planning Lombard International Assurance	Marta García Cortés Wealth Planner Spain and Portugal Lombard International Assurance