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. The nine issuing jurisdictions and the residence rules that decide whether a wrapper defers tax at all are compared side by side in Insurance Wrapper Jurisdictions.
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. Where the policy sits among the family's other planning instruments is set out in the family perimeter map.
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: under Art. 213(1)(2) of the Tax Code, as amended by Laws No. 176-FZ and No. 418-FZ, payouts under voluntary life insurance contracts on survival, another insured event or early termination are exempt from personal income tax (NDFL) only up to the premiums paid. For contracts concluded from 1 January 2025 for at least ten years, sub-paragraph 5 also exempts the excess, up to RUB 30 million per contract and per tax year, provided the recipient is a beneficiary under no more than two other such contracts; for contracts of three years or more concluded before 2025, Art. 4 of Law No. 418-FZ keeps the premium uplift by the Central Bank key rate, computed up to 31 December 2024. Payouts on death under voluntary personal insurance contracts are left out of the tax base by sub-paragraph 3. A foreign unit-linked policy held by a Russian resident is visible through the CRS, and intestate succession applies only where the governing succession law makes it relevant; an absent beneficiary designation must first be assessed under the policy and its applicable insurance law. 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.
Instrument Against Task: Which Policy Does What
The word "policy" covers six products that solve different succession problems. Where to issue a wrapper and how each residence country taxes it is compared in Insurance Wrapper Jurisdictions; the matrix below answers the earlier question — which product for which task.
| Instrument | Premium pattern | Cash value during life | Investment control | Death benefit relative to premium | Main succession task | Watch out |
|---|---|---|---|---|---|---|
| Term life | regular, lowest per unit of cover | none | none | highest, but only within the term | cover a known liability for a known period: a loan, a buy-out, the UK seven-year window | expires; nothing left if death comes later |
| Whole of life | regular or limited-pay | builds slowly | insurer's fund | high, paid whenever death occurs | fund an inheritance-tax bill that will certainly arise | cost rises with age at entry; outside the estate only if written in trust or owned by one |
| Universal life (guaranteed) | flexible; often one large premium | yes; surrender value | crediting rate set by the insurer | high; often bank-financed | estate liquidity for a large, illiquid estate | interest-rate and margin-call risk when premium-financed |
| Indexed or variable universal life | flexible | yes; tied to an index or sub-accounts | choice among the insurer's options | medium to high | liquidity plus growth | cap and floor terms; illustrations are not guarantees |
| Unit-linked (collective funds) | single or regular | yes; the portfolio value | choice among the insurer's funds | low: roughly the portfolio value | direct transfer to named beneficiaries outside probate; national relief such as art. 990 I CGI | residence test: Germany, Spain and the UK look through steerable portfolios |
| PPLI or dedicated fund | single, from the low millions | yes; the dedicated portfolio | a mandated manager; no direct control by the holder | low: portfolio plus a thin risk layer | wrap a large portfolio for deferral and succession under one contract | investor-control and residence look-through rules; Luxembourg categories set the permitted assets |
The table splits along a single line. The first three rows buy a death benefit much larger than the premiums: term, whole of life and guaranteed universal life are the instruments that create money at death, and they are chosen when the problem is a tax bill or a buy-out that the estate cannot meet from its own liquid assets. The last three rows buy a wrapper around money the family already has: unit-linked and PPLI policies pay roughly what they hold, and their value lies in deferral during life, a nominated beneficiary outside probate and, in France and Italy, a death benefit taxed outside the ordinary succession. Indexed and variable universal life sit between the two and inherit the risks of both.
The watch-out column is where plans fail. A term policy that lapses at 80 leaves the estate uncovered at the age when death is most likely; a universal-life policy financed by a bank loan becomes a margin call when rates rise, as the Singapore universal life page describes; a unit-linked or PPLI contract that suits a French resident can be taxed every year once the family moves to Germany or Spain, which is why the PPLI and wrapper pages treat the residence test as the first filter.
Bitcoin: policy, portfolio or collateral
For a bitcoin inheritance, compare Meanwhile, PPLI, direct ownership and a Lombard loan by the obligation each creates. Meanwhile is BTC-denominated life insurance: the beneficiary receives a contractual death benefit from the insurer, with insurer and custody risk. Under the provider's current product description, policy loans become available after one year against up to 90% of surrender value; BTC denomination does not protect the benefit's fiat value. PPLI instead wraps an investment portfolio, with policy terms and residence rules determining its treatment. Direct bitcoin ownership needs an inheritance plan for lawful access to the keys. A Lombard loan supplies liquidity against collateral rather than a death benefit: Sygnum's terms explain that a collateral shortfall can require a top-up and lead to liquidation. Neither a policy loan nor a BTC death benefit is automatically tax-free in every country.
Task to instrument
| Task | Instrument |
|---|---|
| Pay inheritance tax on a business or property without selling it | whole of life or guaranteed universal life, owned by a trust or written in trust |
| Cover the seven-year risk on a large UK gift | decreasing term for seven years on the donor's life |
| Fund a partner buy-out under a cross-option agreement | term or whole of life on each partner, cross-owned or in trust |
| Equalise heirs when one child takes the company | whole of life with the other children as beneficiaries |
| Pass a portfolio outside probate with national tax relief | unit-linked, or PPLI above the dedicated-fund threshold, matched to the residence rules |
Q/A
Which policy creates money for inheritance tax, and which only wraps existing money?
Term, whole of life and guaranteed universal life pay a death benefit far above the premiums and are used to fund a tax bill or a buy-out. Unit-linked and PPLI policies pay roughly the portfolio they hold; their value is deferral, a nominated beneficiary outside probate and, in France and Italy, favourable treatment of the death benefit.
Where are the issuing jurisdictions compared?
On Insurance Wrapper Jurisdictions: nine issuing jurisdictions on supervision, asset segregation, insolvency rank and creditor protection, and six residence regimes on deferral, surrender and death-benefit tax.
Is a policy a way to keep capital out of sight of the tax authorities?
No. Cash value insurance contracts are financial accounts under the CRS, and the insurer reports them exactly as a bank reports a deposit: the balance and the payouts reach the holder's country of tax residence. The wrapper buys tax deferral inside the policy and a direct transfer to the beneficiary, not invisibility.
My UK policy is in my own name rather than written in trust — will the payout still escape IHT?
No, it falls into the estate. A policy the insured owns himself increases the estate and is taxed at 40% above the nil-rate band of £325,000, plus the £175,000 residence nil-rate band on the main home. A policy written in trust stays outside the estate and reaches the beneficiaries at once, without waiting for probate.
I am 72 — is there still any point in taking out an assurance-vie?
There is, but the relief is a different one. Premiums paid after the policyholder turns 70 fall under Article 757 B CGI: a single €30,500 allowance shared across all beneficiaries, then the ordinary succession scale by degree of kinship. Only the premiums are taxed, though — the investment income accumulated on them stays out of the base, unlike the Article 990 I regime and its €152,500 per beneficiary.
The policy is Luxembourg and I am a Russian tax resident — will the payout fall into the estate?
Russian tax residence alone does not determine the law governing a Luxembourg policy or the succession. Check the beneficiary clause and applicable law: where Luxembourg insurance law applies, Article 120 of the Law of 27 July 1997 gives the designated beneficiary a right to the insurance benefit; under Article 107, absent an effective beneficiary designation, the benefit is payable to the policyholder or the policyholder’s estate. Article 934 of the Russian Civil Code is not automatically the rule for a Luxembourg policy. Any reserved-share claim must be assessed separately under the applicable succession law.
What happens to the portfolio inside the policy if the insurer becomes insolvent?
In Luxembourg the holder's assets sit apart from the insurer's own money, with a custodian bank under a tripartite agreement between the insurer, the bank and the Commissariat aux Assurances. Under Article 118 of the law of 7 December 2015, insurance claims carry a privilege over those assets that ranks ahead of every other creditor.