Unit-Linked Life Assurance

Unit-Linked Life Assurance (UL) is a form of whole-life insurance in which the return on the policy is determined entirely by the performance of mutual funds or other permissible underlying securities.

What is an offshore portfolio bond?

Portfolio bonds are at times referred to as “insurance wrappers”. This stems from the fact that a portfolio bond literally “wraps” the protective legal shield of a variable life insurance policy around an investment portfolio. The structure thus combines a life insurance contract and a bank account to create a holding vehicle through which investors can allocate and manage their funds in many different investment strategies.

A UL policy or “Portfolio Bond” combines the advantages of an investment vehicle with those of an insurance policy, namely tax advantages and access to offshore securities and mutual funds.

Ownership

Individuals, a company, or trustees can own a UL policy. The policy can be arranged on a single life, joint life or on a multiple life basis. The policies are normally available to anyone aged 18 or over, other than residents of the insurance company’s domiciled jurisdiction.

Investment flexibility

Normally 100% of your money is allocated to units in the fund or funds of your choice. Many offshore insurance companies allow your existing shareholdings to be transferred straight into the UL policy. In general, the units allocated to your policy can be switched between available investments at any time as financial requirements change over time without incurring capital gain taxes or administrative charges. The policy can be denominated in all major currencies.

Access to capital

A UL policy can be partially or totally encashed at any time, allowing access to capital whenever it is needed. The policy can also be used to provide an automatic regular income.

Valuable benefit at death

Offshore insurers underwriting UL policies generally pay a death benefit equal to 101-105% of the encashment value of the policy at that time. Additional life cover is available. Under a joint life policy, death benefits are paid out on the last death.

Tax efficient

The offshore insurers Nordica represents underwriting UL policies are currently not liable to any form of tax in respect of income and gains on policyholder’s funds. Over the long term, this tax exemption enables the policyholder’s assets to accumulate faster. Certain investment income may however be subject to a tax deduction at source in its country of origin.

U.S. Citizens and Residents

A UL policy does not qualify as a life insurance policy or an annuity contract for U.S. tax purposes. Thus, incremental increases in the policy’s cash value would be subject to current federal income taxation and death benefit proceeds would not be excludable from the recipient’s income.

Typical jurisdictions where you find insurers underwriting Unit-Linked Life Assurance policies are; Isle of Man, Guernsey, Luxembourg and Switzerland.