Jeroen Simons is Sales Director – Hong Kong and Singapore at 1291 Group Asia, a global financial services group offering tailor-made solutions to help wealthy families protect and manage their assets.
A Private Placement Life Insurance (PPLI) is an investment-linked insurance contract. However, unlike other insurance contracts, PPLI policies are specifically tailored to meet the needs of a particular individual or family grouping, making them valuable tools for wealth planning purposes for high-net-worth individuals.
The client is the holder and owner of the policy who chooses the investment strategy and appoints the beneficiaries. A policyholder may be a natural or legal person, such as a corporation, foundation, or trust.
The term of the PPLI policy corresponds to the life of the insured person, who must — by definition — be a natural person. It is possible to insure several persons at the same time. In the event of death of the insured person, payment of the death benefit will be made to the beneficiaries, who may be natural or legal persons.
There are five overarching benefits of PPLI, the first of which is privacy. The insurance company legally becomes the beneficial owner of the policy assets, which greatly simplifies any cross-border reporting requirements for policyholders.
Second is asset protection. When properly set up, policyholders are protected by law from creditors and seizure after the conveyance period.
Third is tax efficiency. The investment returns generated inside the policy are tax deferred and as such grow at a gross compounded rate of return. Furthermore, distribution of death benefits to beneficiaries is generally tax-free.
Estate planning is fourth. Proceeds of a life insurance policy bypass the need for probate and forced heirship provisions ensuring a speedy distribution to beneficiaries.
Cash/liquidity planning is the fifth benefit as PPLI policies can be borrowed against or surrendered at any time.
Henley & Partners tracks migration patterns carefully and can assists clients in evaluating the available country options for residence and citizenship planning purposes. From the Henley Wealth Migration Dashboard data, we can conclude that some of the more popular destinations for high-net-worth families are Australia, Portugal, the UK, and USA, all of which have relatively elevated and more inclusive tax regimes compared to say Hong Kong or Singapore. Moving to any of these destinations without planning can expose new residents to unpleasant tax liability surprises.
A tax compliant PPLI policy can be a powerful pre-emptive tool to help manage tax exposure and create liquidity in the event of death, enabling proactive estate and succession planning, while keeping well within the ever-tightening worldwide regulatory environment.
Finally, in today’s world, where one move is often followed by another, it is noteworthy that an appropriately designed PPLI policy can be portable between different jurisdictions, making the move for your financial assets much simpler.