Origins
The idea of holding capital inside an insurance policy grew out of Anglo-Saxon estate planning. In the United States, wealthy families have for decades kept insurance proceeds outside the estate tax through an ILIT (Irrevocable Life Insurance Trust); in the United Kingdom, a policy is written in trust so that the payout does not fall into the estate. In the 1990s and 2000s, Luxembourg and Ireland built a distinct industry on this: unit-linked policies for internationally mobile families, recognised in several countries at once. Today it is a standard instrument in the family office toolkit.
Concept
In estate planning, a life insurance policy works as a wrapper for investment capital. Through a unit-linked policy the family holds a portfolio inside the insurance shell: income inside the policy grows tax-deferred, and the owner fixes in advance who receives the payout, and in what proportion, when the insured event occurs. The assets are managed by a licensed insurer, and the investment strategy is agreed with the holder.
Luxembourg and Ireland
The benchmark is Luxembourg, with its triangle of security: the client's assets are segregated and held with a custodian bank, and the arrangement between the insurer, the bank and the regulator (the Commissariat aux Assurances) is approved in advance. The holder is protected by a super-privilege: on the insurer's insolvency, their claims are satisfied first, ahead of other creditors. Ireland offers comparable reliability inside the EU. Both jurisdictions issue policies that are recognised in most countries and adaptable to the holder's tax residence — French, Spanish or Italian.
Why Use It in Succession
First, liquidity: the policy payout gives heirs ready cash to settle inheritance tax (IHT, estate tax) without a rushed sale of the business or real estate. Second, speed — the sum goes to the designated beneficiary directly, bypassing probate; a cross-border estate can drag through probate for months, sometimes years.
Tax Logic
Inside the policy the investment income is usually untaxed until payout — a lawful deferral. At payout the tax depends on the country of the holder and the beneficiary, and in a number of jurisdictions the policy grants a direct inheritance-tax relief. This does not undo transparency: cash value insurance contracts fall under the CRS and automatic exchange, so the balance and income are visible to the tax authorities.
How It Works by Jurisdiction
France
French assurance-vie is the model of a preferential regime. Under Article 990 I CGI, sums from premiums paid before the policyholder turns 70 are exempt up to €152,500 per beneficiary; above the limit, 20% up to €700,000 and 31.25% beyond. Premiums paid after 70 fall under Article 757 B: a single €30,500 allowance across all beneficiaries, then the ordinary succession scale, while the accumulated investment income remains untaxed.
Italy
In Italy, the life insurance payout does not form part of the estate and is exempt from inheritance tax (imposta di successione) — regardless of the amount or the beneficiary. The basis is Article 1920 of the Civil Code: the beneficiary's right arises directly against the insurer, not as a transfer mortis causa. The investment income on a unit-linked policy may nonetheless be subject to Italian income tax.
United Kingdom
The British classic is a policy written in trust. The payout then falls outside the estate and is not subject to IHT (40% above the nil-rate band of £325,000, plus a residence nil-rate band of £175,000; both thresholds frozen until April 2031). A policy in trust passes to beneficiaries at once, without waiting for probate. From 6 April 2025 the UK moved from domicile to a long-residence test: worldwide IHT catches anyone who has been a tax resident for 10 of the last 20 years.
United States
In the United States, the life insurance payout is free of income tax but is included in the taxable estate if the insured retained incidents of ownership over the policy (§2042 IRC). The solution is the ILIT again: the policy is owned by an irrevocable trust, and the sum passes outside the estate. From 2026 the federal estate and gift tax exemption is fixed at $15 million per person (the One Big Beautiful Bill Act, indexed to inflation), with a 40% rate above it. For non-residents with US-situs assets the exemption is incomparably small, around $60,000, and here the policy helps cover an unexpected bill.
Russia: Beneficiary and Personal Income Tax
Under Russian law, a personal-insurance payout goes directly to the designated beneficiary and does not form part of the estate (Art. 934 of the Civil Code) — the mechanics are close to a Western policy written in trust. On tax: payouts under voluntary life insurance contracts with a term of five years or more are subject to personal income tax (NDFL) only on the income exceeding the premiums paid, uplifted by the average annual key rate of the Central Bank (Art. 213 of the Tax Code). A foreign unit-linked policy held by a Russian resident is visible through the CRS, and intestate succession sets the order of heirs if no beneficiary is designated. CFC taxation usually does not apply to the policy itself, but each structure is checked individually — for the specific insurer, the policy's contents and the scope of the holder's rights.
Evolution
Thirty years ago the policy was prized partly for its opacity. The CRS and automatic exchange closed that off: the shell remains convenient for tax deferral, direct transfer of capital and liquidity for succession, but as a concealment tool it no longer works. Tax authorities challenge "frontal" schemes with no economic substance, so a modern policy is built with a real insurance component and a careful tie to residence. Against this backdrop, PPLI (private placement life insurance) and unit-linked wrappers remain a growing segment of private wealth management.
🧭 Check your case: Inheritance Navigator — which law governs, where forced heirship applies, and what taxes arise.
This material is for reference purposes and does not constitute individual legal advice.