What is the best way to grow your savings, diversify your investments, protect your loved ones and pass on your assets? One solution is a Luxembourg life insurance policy, which is an investment and wealth management tool that offers many advantages. myLIFE provides further details.

Life insurance is a broad segment that combines several types of products. In particular, there is the term life insurance policy, which offers financial protection for your loved ones should you die. For example, credit protection insurance covers the outstanding balance on your mortgage if you die before it is fully repaid.

A retirement savings policy lets you build up a specific pension pot.

An endowment policy guarantees the payment of a lump sum to you upon maturity, or to your heirs if you should die before the policy matures.

Another alternative is an insurance-based investment products (IBIPs) that aims to manage your wealth and protect your assets. We will take a closer look at this last category of products.

How does a Luxembourg life insurance policy work?

Insurance-based investment products are for savers who are financially comfortable and looking for flexible, tailor-made solutions for their investments.

As with other forms of life insurance, you pay a premium to an insurance company, which undertakes to pay a lump sum to one or more designated beneficiaries when the policy matures (either upon maturity or upon the death of the policyholder).

The premiums are invested in financial products, guaranteed capital funds or other instruments, based on the policyholder’s risk profile and investment objectives. Payments and withdrawals (partial or full redemptions) are possible at any time and the policyholder is free to choose one or more beneficiaries when the policy is taken out (beneficiaries can be changed during the life of the policy, subject to certain conditions).

Under the freedom to provide services (FPS) scheme, Luxembourg companies are entitled to distribute their life insurance products via their intermediaries across the entire European economic area.

Useful info: the freedom to provide services (FPS) scheme allows Luxembourg companies to distribute their life insurance products via intermediaries across the entire European economic area (providing the legal and taxation rules of the country of residence of the subscriber and/or policyholder are respected). Luxembourg life insurance policies are therefore accessible to residents of a number of European countries.

What are the advantages of a Luxembourg life insurance policy?

Luxembourg life insurance offers you the possibility to save on a medium or long-term basis, to diversify your investments, protect your loved ones if you should die, and to pass on your assets. It also offers a number of key advantages:

• • A unique form of protection in Europe thanks to the triangle of protection and Super Privilege (see the box below).
  • Access to several types of investment vehicle (depending on your country of residence, the insurance company you choose, and the sums involved): dedicated internal funds (FID), specialised insurance funds (FAS), general funds (euro or dollar funds), external funds (accumulation SICAVs) or collective internal funds (FIC).
  • Tailor-made investment solutions with flexible investment management to suit your profile (investment advice or a management mandate). Management can be personalised if the amounts invested in the life insurance exceed a certain threshold.
  • Tax neutrality for non-resident foreigners. Life insurance products are subject to taxation in the policyholder’s country of residence, so Luxembourg does not tax insurance policies held by foreign residents, which avoids any potential double taxation issues.
  • Your policy can be moved and transferred internationally. If your country of residence changes within the European economic area, the insurance company may, within certain limits, adapt the policy to the legal and tax regulations in your new country of residence.
  • You are free to choose the currency of your insurance policy: euro, dollar, Swiss franc or pound sterling.

Useful info: the flexible nature of Luxembourg life insurance means that the amounts invested may, under certain circumstances, be used as collateral for a Lombard loan. If you are eligible for this type of loan (reserved for qualified investors), you may be able to pledge (pledge or assignment of receivables) your life insurance policy to guarantee the loan. You will therefore have access to liquidity, without having to dip into your capital. More information on Lombard loans.

Luxembourg life insurance is particularly popular with wealthy clients who are geographically mobile and looking for personalised investments that offer a high level of protection.

The specific characteristics of Luxembourg life insurance make it particularly popular with wealthy clients who are geographically mobile and looking for personalised investments that offer a high level of protection.

What are the disadvantages of Luxembourg life insurance?

There are also several restrictions on Luxembourg life insurance, so not all of the services offered are available to everyone. To access tailor-made management mandates and advisory services, and dedicated internal funds (FID) and specialised insurance funds (FAS), you need a substantial level of financial assets (of between EUR 250,000 and EUR 2,500,000) and must invest at least EUR 125,000, or even EUR 250,000. However, other investment vehicles are accessible for lower premiums and asset levels.

In addition, you cannot subscribe for a Luxembourg life insurance policy online as a number of upfront checks are required (identity, source of funds, etc.). In principle, it is not possible to manage the policy online, despite improvements made in recent years regarding the remote signature of documentation.

Although a subscription for a Luxembourg life insurance policy is possible from several European countries, it is not open to the residents of all countries. You should check in advance with the insurance company or an insurance broker.

Lastly, apart from investments in a general fund (guaranteed capital), you must be aware that, as with all investments, there is a risk of capital loss when investing in life insurance. More generally, all investing involves risk.

A Luxembourg life insurance policy must comply with the legal, tax and regulatory conditions in the policyholder’s country of residence.

What about taxation and inheritance issues for Luxembourg residents?

A Luxembourg life insurance policy must comply with the legal, tax and regulatory conditions of the policyholder’s country of residence. Each country sets its own conditions for a policy to be valid.

If you are resident in Luxembourg and have taken out a life insurance policy, you are subject to Luxembourg tax law.

This means that any premiums paid for a life insurance policy used as an investment product are not subject to tax. Nor are they deductible from income, in contrast to insurance premiums paid under Article 111 LIR (Luxembourg Income Tax Law). Furthermore, in the event of full or partial redemption of the policy, the capital you receive is exempt income tax (Article 115, paragraph 17 LIR).

Lastly, in the event of your death, the amounts paid to your beneficiaries under the life insurance policy are subject, where applicable, to Luxembourg inheritance tax. The level of such taxes will depend on the degree of kinship between you and your beneficiaries and the value of the assets transmitted. Note that, depending on the country of residence of your beneficiaries, registration fees may also be payable in their country of residence, which could result in double taxation.

Useful info: if you transfer your tax residence abroad, most Luxembourg insurance companies will be able to make the required legal and regulatory adjustments to ensure that the policy complies with legislation in your new country of residence.

To find out more about Luxembourg life insurance, contact your banking adviser or wealth manager, providing they are also an insurance broker or sub-broker. Where applicable, they will be able to draw up a full assessment of your situation and guide you towards the most suitable solutions for your requirements.