Going Places? The Luxembourg Life Insurance Policy, a great Investment for World Travelers
If you’re an internationally mobile individual looking for an investment vehicle with tax advantages, asset protection, and flexible options, look no further than the Luxembourg life insurance policy.
The contract, signed between an insurance company and an investor, differs from most international life insurance policies in several ways, but as for most of them it is based on the principle that it terminates when the investor dies. When that occurs, the sums within the policy are considered to be outside of the policy holder’s inheritance estate and will go to a beneficiary previously named by the policy holder in the contract. This also means that the insurance policy cannot be seized by creditors.
This flexible clause constitutes the first major characteristic of the Luxembourg life insurance policy: the policy holder can name any individual or entity as beneficiary (not only their legal heirs), the clause can be adjusted at any time and its ownership can be dismembered (between bare ownership, usufruct or full ownership).
The policy offers a vast array of investment vehicles: listed shares, private equity, real estate assets, and a number of international currencies. All of these assets can be stored within an Internal Dedicated Fund (FID), tailored to each investor’s needs.
The policy holder’s capital is protected by the Great Duchy’s golden triangle. The convention is signed by the insurance company, the depositary and the Luxembourg State’s chamber of control. The policy holder’s capital is first accounted for in the insurance company’s liabilities, and they legally have to be accounted for the same amount in the company’s assets, which are then handed to the depositary (which needs to have received the agreement of the State’s chamber of control). The state of Luxembourg is one of only fifteen AAA rated countries worldwide, offering great political and economic stability.
If the insurance company were to default, the policy holder would have a super privilege on his assets, giving him a primary creditor status, allowing the sums to be paid back not only from the assets invested in the policy, but also from the insurance company’s cash reserves, equity and assets. Henceforth, the capital protection is unlimited (as opposed for example to France, where deposits are protected up to 70 000€ or $250 000 in the USA), as all of the policy holder’s assets have to be accounted for in the insurance company’s balance sheet.
The policy is very useful for expatriates and individuals who are internationally mobile.
The Luxembourg life insurance policy is fiscally transparent: it is taxed according the fiscal rules of the policy holder’s country of residence, not according to Luxembourg law. This means that capital gains are not taxed in Luxembourg, avoiding double taxation, as opposed to most countries where there is a fiscal convention. This can be very useful for an internationally mobile individual: the taxation will only be that of the country of residence. This also goes for inheritance tax, as Luxembourg only applies it to its fiscal residents. Capital gains will only be taxed if funds are taken out of the contract or if it is terminated: unrealized capital gains or changes of investments within the policy will never be taxed.
As previously stated, Luxembourg life insurance policies can be invested in many currencies other than the euro or the dollar, when opened and also for additional payments. That way, international investors don’t have to worry about exchange risks or currency exchange fees.
All in all, the Luxembourg life insurance policy is a great wealth management tool, especially for internationally mobile individuals: it offers advantageous taxation, flexible investments, and full protection of capital.
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Article rédigé le 15 Mai 2023 par Oscar Fletcher.