Reprinted with permission of the Bahamas Financial Services Board (BFSB)

The range of applications for international insurance has increased significantly. Creative use of different types of insurance can provide benefits at all phases of the wealth life cycle.

Captives
Captive insurance can be an effective mechanism for the initial transfer of assets into a wealth management structure on a pre-tax basis. On the other hand, life insurance, although purchased with post-tax assets, provides effective deferral of the taxation on the invested assets and then a tax-efficient exit strategy on termination of a structure and inter-generational transfer.

Until recently, captive insurance was the exclusive domain of the large corporations and little use was made of captives in private wealth management or by small- to medium-sized businesses. This is now changing and, increasingly, we are seeing captives incorporated as an integral part of wealth management structures.

Variable life insurance
Variable life insurance policies offer a number of very tangible benefits. These products can provide significantly greater investment freedom, including virtually no restriction on the types of investments contained within the policy. Investment diversification, through client-tailored policies, can be designed to each client’s specific investment parameters. This may include globally diversified investment opportunities and access to some of the world’s best money managers and private funds.

Some international insurance companies will be flexible enough to allow the client to name an investment advisor of choice to manage the policy premium(s) as held in a segregated account.

Use of insurance
It is important to emphasize that even though policies may be issued by international insurance companies, the policies must be compliant with the rules relating to insurance and taxation in the country of the policy purchaser. Insurance, like many other products, is not an effective vehicle for protection of anonymity. Unfulfilled reporting requirements will invalidate a structure.

Ultimately, insurance provides one of the ingredients necessary to construct a single structure that provides the basic but fundamental benefits of international wealth management, namely asset protection, tax efficiency and investment flexibility. The function of the insurance is to provide a tax efficient, asset-protected investment vehicle to facilitate the client’s access to the international wealth management arena.

Legislation
The Bahamas has user-friendly and progressive legislation for almost all types of insurance business. It can provide significant asset protection with legislation specifically exempting an insurance policy from creditors – unless of course the policy’s original premiums were derived from criminal or fraudulent activity. And while a number of US states specifically exempt annuities and life insurance products from the claims of creditors, such a policy held by a Bahamian trust can provide an effective deterrent to unforeseen and unwarranted attacks by would-be creditors.

Regulatory framework
The industry is supervised by the Registrar of Insurance Companies.  For captive insurance companies, however, the main responsibility for the ongoing operations of such entities rests with the captive manager. This must be a Bahamian company set up for the purpose of managing and providing insurance expertise to captives and which holds an appropriate license issued by the Registrar.