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An exciting alternative in wealth planning

(ATF) Over the past two decades, Asia’s most affluent citizens have been accumulating wealth alongside a flourishing regional economy and strong infrastructure developments.

By mid-2019, the global wealth estimate was put at US$360 trillion, almost 40% of which ($141 trillion), was from the Asia Pacific region. As the world reshapes in the wake of the Covid-19 pandemic, many of the region’s wealthy citizens are reviewing their wealth management strategies to explore untapped opportunities, regardless of sector or jurisdiction. 

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As investors continue to look for ways to build their wealth, it is also important to protect and preserve that legacy for future generations. Private placement life insurance (PPLI), also known as unit-linked life insurance, is an internationally recognised wealth management solution that is growing in popularity among Asia’s ultra-high net worth individuals.

PPLI is able to address the growing needs investors have in protecting, preserving and passing on their investments, and is an exciting alternative in wealth planning in Asia.

Today’s ultra-high-net-worth-individuals

What are today’s ultra-high-net-worth individuals looking for?

Consider the case of Mr and Mrs Li, a Chinese couple who built their fortune running a manufacturing business that they sold a few years ago. Planning to retire shortly, the majority of the proceeds from the sale were invested in a variety of business opportunities,  including venture-backed start-ups and real estate developments. The couple has three children and several grandchildren, some of whom live in the UK and US. It is important to the Li’s that their wealth is preserved over generations and continues to provide for their increasingly globalised family.

Wealth transfer made efficient

For people like Mr and Mrs Li, private placement life insurance is an efficient way to manage wealth across multiple jurisdictions and also has a multitude of wealth planning benefits. 

A private placement life insurance policy provides full oversight of assets and allows the policyholder to allocate and withdraw their investment as they wish. A well-designed structure will be able to offer tax deferral on investment earnings until the solution is surrendered or withdrawals are taken out – providing flexibility to the policyholder in their wealth planning and creating structural alpha through asset location.     

As a tailor-made insurance policy, private placement life insurance allows affluent citizens to directly pass on their wealth to selected heirs upon their death.

This avoids any unnecessary delay to the transfer of wealth with the pay-out being made directly to the nominated beneficiaries without the need for the estate to go through probate court.

PPLI can also be combined with more traditional structures like a trust, which acts as the policyholder and carries out the control function for pay-out distribution to beneficiaries in line with the settlor’s wishes. This can be particularly powerful in jurisdictions where the efficiency of trusts are being challenged.

As ultra-high-net-worth families like the Li’s become more internationally mobile, global portability and compliance are key drivers in their selection of wealth planning solutions.

As an internationally recognised wealth management solution, PPLI policies are universally accepted and can be made portable between many jurisdictions.

Investment diversity and flexibility

Private placement life insurance is also used by wealthy individuals to add diversity and flexibility to their estate planning, as they often possess complex portfolios comprised of a variety of asset types.

In addition to standard bankable assets, PPLI policies can accept non-traditional assets, such as alternative investments and private market investments as policy assets. In our example, Mr and Mrs Li’s investments in start-ups and real estate can be incorporated as part of the underlying assets of the policy. 

This is attractive for wealthy citizens who can encounter issues with market access, inefficiencies in their investments and reporting burdens on their assets. With this structure, a PPLI set-up can help investors benefit from tax-deferred investment growth and greater asset class diversification. 

Other advantages of private placement life insurance include the ability to maintain existing asset management and banking relationships, asset protection – ensuring the separation of policyholder assets from those of the insurance company – and hassle-free compliance and reporting. The policyholder receives a yearly policy valuation on their returns, and ensures full compliance with the Automatic Exchange of Information for the policy under the OECD Common Reporting Standards.

As the world becomes increasingly globalised and Asia’s wealthy citizens look beyond their borders for investment opportunities, there will be a growing demand for comprehensive and flexible wealth and estate planning solutions.

PPLI stands out in its ability to support affluent citizens in gaining access to these opportunities with a robust structure, making it an ideal wealth planning solution that is efficient, effective, and most importantly: future-fit.

# Jason Tsui, managing director, Institutional Business, Lombard International


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