Life Insurance Wrappers: Maximizing Your Policy Benefits

An insurance wrapper is a long-term insurance policy that holds all of an individual's assets in one place. It is a life insurance policy 'wrapped' around the policy owner's investment portfolio, which is owned and controlled by the insurance company until payment is made in accordance with the terms of the policy. Insurance wrappers offer asset protection and tax planning benefits to policyholders. They are ideal for long-term saving and investment, as taxation is only performed when the savings are withdrawn.

An insurance wrapper is a long-term insurance policy

The insurance wrapper is ideal for long-term saving and investment. It is a flexible way to save and invest as it allows you to diversify your savings into different investments with one insurance contract. You can change investments within the insurance wrapper without incurring charges. This means you can select from a wide range of investment options, including funds, direct shares, bank accounts, brokerage accounts, and even shares of privately owned companies.

The wrapper can hold many types of assets, and you can define the method of distribution of these assets in the event of your death. You can also name multiple assured lives on the wrapper, ensuring its continued existence after the owner's death. This feature is particularly useful for succession planning.

Insurance wrappers also offer asset protection and tax planning benefits. They provide a protection barrier as the ownership of assets is separate from the beneficial owner. Additionally, the wrapper may provide specific tax breaks as taxation is only performed when withdrawing savings.

It is a tax-efficient way to save and invest

An insurance wrapper is a tax-efficient way to save and invest. It is a long-term insurance policy that holds all your assets in one place, including investments in funds, direct shares, bank accounts, and brokerage accounts. One of the key benefits of an insurance wrapper is that it allows you to diversify your savings into different investments with one insurance contract. You can change your investments within the wrapper without incurring taxes, and you only pay taxes when you withdraw savings. This makes it an ideal vehicle for long-term savings and investments.

The tax advantages of insurance wrappers are particularly notable when compared to other structures such as trusts, private foundations, and offshore companies. While regulatory changes have impacted the benefits offered by these traditional structures, insurance wrappers continue to provide legitimate and legal tax advantages. This is because the income earned in the insured's investment portfolio is generally not subject to taxes during the lifetime of the policy. Only when the policy matures and proceeds are paid out, the risk component is typically tax-exempt, and the savings component is taxed at a favourable rate.

The tax efficiency of insurance wrappers is further enhanced when combined with trusts. By setting up a trust as the holder and beneficiary of the insurance wrapper, the proceeds are paid to the trust upon policy maturity. This structure provides an additional layer of asset protection and allows for tax deferral on the income generated by the saving component. It also ensures that the funds are protected from potential claims of the debtor of the settlor.

In addition to tax planning, insurance wrappers offer other benefits such as asset protection and succession planning. By holding all your assets in one place, you can easily define the method of distribution in case of the death of the wrapper owner. Insurance wrappers also provide a protection barrier as the ownership of assets is separate from the beneficial owner. This ensures that your beneficiaries' rights are protected, even in the case of potential claims by your debtors.

Overall, insurance wrappers offer a tax-efficient way to save and invest by providing tax deferral, specific tax breaks, and protection from certain taxes during the lifetime of the policy.

It can be used for asset protection

An insurance wrapper is a long-term insurance policy that wraps around the policy owner's investment portfolio. It is owned and controlled by the insurance company until payment is made according to the terms of the policy. It can be used for asset protection in the following ways:

Firstly, it offers a protection barrier by separating ownership from the beneficial owner. This means that assets are transferred to a regulated entity, such as Quilter Plc, which is overseen by independent bodies like the Central Bank of Ireland and the FCA in the UK, thus minimising counterparty risk.

Secondly, it can hold all of your assets in one place, including investments, bank accounts, brokerage accounts, and shares of privately owned companies. This consolidation of assets has benefits for succession planning, as it allows you to define the method of distribution in the case of the owner's death. It also enables you to name more assured lives, ensuring the wrapper continues after the owner's death.

Thirdly, an insurance wrapper can be used for asset protection by providing tax benefits. Taxation is only performed when there is a withdrawal of savings, meaning that changing investments within the wrapper is tax-exempt. This allows the policyholder to benefit from the compound interest effect.

Finally, in the context of Israeli law, an insurance wrapper can be an effective instrument for asset protection because it takes the funds payable under the risk component out of the insured's estate. It also protects the beneficiaries' rights against potential claims of the insured's debtors.

It can be used for succession planning

A life insurance wrapper is a long-term insurance policy that is "wrapped" around the policy owner's investment portfolio. It is owned and controlled by the insurance company until payment is made in accordance with the terms of the policy. Life insurance wrappers are ideal for long-term saving and investment, and they offer tax benefits and asset protection.

Life insurance wrappers can be used for succession planning in several ways. Firstly, they can provide liquidity upon the policyholder's death, which can be used to cover estate taxes, pay down business debts, or support operational costs during a transition period. This helps maintain stability for the business and its stakeholders during a challenging time.

Secondly, life insurance wrappers can facilitate buy-sell agreements, which are legally binding contracts that outline how ownership interests in a business will be transferred if an owner dies, becomes disabled, or retires. The death benefit from a life insurance wrapper can be used by surviving business partners or the business itself to purchase the deceased owner's share, ensuring a smooth transition of ownership without financial strain.

Additionally, life insurance wrappers can help equalize inheritances. For business owners with children who are not involved in the company, life insurance provides a way to balance inheritances. The business can be left to the involved child, while the insurance policy provides an equivalent financial inheritance to the other children. This strategy helps maintain family harmony and keeps the business within the family for future generations.

Life insurance wrappers also offer tax advantages that can benefit succession planning. Taxation is only performed when savings are withdrawn from the insurance wrapper, meaning that changing investments within the wrapper is tax-exempt. This allows for efficient tax planning and can result in significant tax savings over time.

Furthermore, life insurance wrappers can provide protection for beneficiaries. In some jurisdictions, such as Israel, the funds payable upon the death of a policyholder are not considered part of their estate. This means that the beneficiaries' rights supersede those of the policyholder's debtors, providing protection against potential claims.

By utilizing a life insurance wrapper for succession planning, business owners can ensure a smooth transition of ownership, maintain financial stability, equalize inheritances, and take advantage of tax benefits and asset protection. It is important to work with financial professionals and estate planners to properly structure the life insurance wrapper to align with the specific goals and needs of the business.

It can be used for estate planning

Life insurance is about protection, making sure your loved ones have the resources to continue on after you pass away. It can also help with estate planning and the management and distribution of your assets. Estate planning involves creating a plan to distribute a person's estate at the end of their life and after their death. It involves creating a plan to manage the individual's assets and ensure that their final wishes are carried out.

An insurance wrapper is a long-term insurance policy "wrapped" around the policy owner's investment portfolio. It is registered in the name of the insurer and is controlled and administered by the insurer. Insurance wrappers offer asset protection and tax planning to the policyholders. The benefit of an insurance wrapper is that taxation is only performed in connection with the withdrawal of savings. In other words, changing investments inside an insurance wrapper is tax-exempt.

The strategic use of life insurance can help with estate planning in several ways. Firstly, it can help cover final expenses such as funeral expenses, debts, and final income taxes. Life insurance can also help offset taxes due on an inheritance. Secondly, life insurance in an estate plan can be used to equalize an estate inheritance among heirs. For example, if a mother passes away and leaves a beach house to two sons and a daughter, life insurance can be used to compensate the sons if the daughter wants to keep the house. Thirdly, life insurance can be used to fund a buy-sell agreement, which outlines how a departing founder or partner's share in a business should be sold or reassigned to other stakeholders. Finally, life insurance proceeds can be earmarked for a specific purpose, such as divorce obligations for spousal or child support, or continuing support for a loved one with special needs.

Frequently asked questions