Insurance wrappers for international private clients

Concept and mechanics

The insurance wrapper is the point at which the insurance industry meets the private banking tradition of Zurich and Geneva most directly. In its typical form, a client who holds a securities portfolio at a bank concludes a unit-linked life insurance contract with an insurer and pays the premium by transferring the portfolio, or its value, to the insurer. The insurer becomes the owner of the assets and the client of the bank, while the assets usually remain at the same bank, often under the same portfolio manager and sometimes in the same investment strategy. Pascal Grolimund and Alain Villard described the result in 2011 as the transformation of a two-party banking relationship into a triangle of policyholder, formerly the bank’s client, insurer, now the bank’s client, and bank.¹ The benefit on death is usually the value of the underlying assets plus a small additional sum at risk. On surrender, the policyholder receives the value of the assets less charges.

In international practice, the most elaborate version of this product is known as private placement life insurance, a term borrowed from the United States. American practitioners describe it as a variable life insurance policy that is privately offered and that allows investment in hedge funds, real estate or other assets not available in ordinary retail products.² For a client, the attraction lies in a combination of features that no other single structure provides. The assets are held by a regulated insurer and are segregated from its other assets under the rules of its domicile. The contract allows the policyholder to designate beneficiaries outside the formal succession procedure. It may protect the assets against creditors in certain circumstances and may defer or reduce taxation on investment income in the policyholder’s country of residence. The weight of each of these features varies with the client’s residence and the insurer’s domicile. The legitimacy of the whole arrangement depends on whether the insurance form is respected by the law that governs the client’s affairs.

The wrapper domiciles: Liechtenstein, Luxembourg and Switzerland

Liechtenstein and Luxembourg became the main domiciles for wrappers sold to clients of Swiss banks. Both are members of the European Economic Area, which allows their insurers to sell contracts across Europe on the basis of freedom of services. Each has also developed strong protection for policyholders’ assets. In Luxembourg this protection is known as the triangle of security. The assets that cover a policyholder’s contract are deposited with a custodian bank, separated from the insurer’s own assets under a custody agreement approved by the Commissariat aux Assurances, and policyholders enjoy a super-privilege that gives them priority over all other creditors of the insurer in respect of those assets. A law of 10 August 2018 reinforced the system by clarifying its operation, distinguishing asset pools for unit-linked and guaranteed contracts and allowing claims to be satisfied by a transfer of assets in kind.³

The Luxembourg system faced its first serious test in 2024. FWU Life Insurance Lux S.A., a Luxembourg subsidiary of the Munich-based FWU group, informed the regulator on 19 July 2024 that it no longer met its capital requirements after its parent had fallen into a liquidity crisis and become insolvent in Germany. After the Commissariat aux Assurances had frozen the assets that covered the technical provisions on 23 July 2024, a Luxembourg court granted a stay of payments on 2 August 2024. The insurer reported liabilities of about EUR 1.1 billion against assets of EUR 1.09 billion.⁴ The case is a reminder that the protection of a wrapper depends on the soundness of its segregation arrangements, which have to work in an actual insolvency.

Liechtenstein’s insurers concentrate on the same business. The Financial Market Authority of Liechtenstein reported thirty-two insurance companies at the end of 2023 and gross premiums of CHF 5.74 billion, of which CHF 2.34 billion was life business, largely unit-linked. The principal markets for Liechtenstein insurers in 2022, by premium volume, were Switzerland, Germany, Ireland, the United States and Italy.⁵ The presence of the United States among the main markets for a small European insurance centre illustrates both the demand for wrapper products among wealthy American families and the compliance exposure that this demand creates. The Liechtenstein supervisor has, for its part, turned its attention to product governance. Its guidance for 2026 requires insurers to assess the value for money of unit-linked products and to justify their cost structures.

Swiss insurers participated in the wrapper business mainly through subsidiaries in these two centres. In January 2011 swissinfo reported that the private placement life insurance business of Swiss Life had nearly doubled its segment volume to CHF 4.1 billion in the first nine months of 2010, and that Bâloise’s life business had grown by 38 per cent in the first half of 2010, driven in part by unit-linked policies of its Luxembourg and Liechtenstein subsidiaries.⁶ Swiss domestic law also permits unit-linked life insurance, including contracts with separate account or custody arrangements. For Swiss residents, however, the tax rules described below limit the attraction of such contracts to cases that satisfy the conditions of genuine pension provision.

Asset protection under Swiss insurance contract law

The Swiss Insurance Contract Act of 1908, substantially revised with effect from 1 January 2022, contains rules on the protection of life insurance claims that have been part of the Swiss private client toolkit for a century. The general rule is that the rights under a life insurance contract belong to the policyholder’s assets and fall into the estate in bankruptcy, even if a third party is designated as beneficiary. A revocable beneficiary designation lapses when the policyholder is declared bankrupt or when the claim is seized. Article 80 of the Act makes an important exception. If the beneficiaries are the policyholder’s spouse, registered partner or descendants, and the policyholder is also the insured person, the claim under the policy is excluded from enforcement by the policyholder’s creditors. Where no beneficiary has been designated, Article 86 allows the spouse or descendants to take over the contract by paying the surrender value to the bankruptcy estate. All such arrangements remain subject to the actions for avoidance of transactions in Articles 285 et seq. of the Debt Enforcement and Bankruptcy Act.⁷ Article 81 complements these rules by giving spouses and descendants who are designated as beneficiaries a right to step into the contract as policyholders when bankruptcy proceedings are opened against the policyholder, unless they expressly decline.⁸

These provisions give a Swiss life policy with family beneficiaries a degree of creditor protection that a bank account does not have. Their limits are equally important. The protection gives way where the conclusion of the policy or the payment of the premium can be challenged under the avoidance rules, for instance because it was intended to defraud creditors or took place when the policyholder was already insolvent. A foreign court may refuse to recognise the protection if the policyholder lives abroad and the creditors pursue him there. Lawyers who advise on asset protection therefore treat Article 80 as one element in a broader plan that must be put in place while the client is solvent and free of known claims. In the author’s practice, the most frequent question from foreign clients concerns precisely this point: whether a Swiss or Liechtenstein policy concluded years before a dispute arose will be respected by the courts of the client’s home country. The honest answer depends on that country’s insolvency and conflict of laws rules and is rarely unconditional.

Taxation in Switzerland

Swiss tax law treats life insurance favourably, but it attaches conditions that prevent a mere investment account from enjoying the privileges of insurance. The starting point is Article 24 lit. b of the Federal Act on Direct Federal Tax, which exempts from income tax the proceeds of repurchasable private capital insurance. For capital insurance financed by a single premium, Article 20 para. 1 lit. a of the Act makes the investment return taxable unless the insurance serves the purpose of pension provision. The cantonal tax administrations, following the practice of the Federal Tax Administration, apply three conditions for tax-free treatment: the payout must occur after the insured person has reached the age of sixty, the contract must have run for at least five years, and it must have been concluded before the insured person’s sixty-sixth birthday.⁹ The practice goes back to Circular No. 24 of the Federal Tax Administration of 30 June 1995 on capital insurance with single premiums.¹⁰

For unit-linked and index-linked policies the requirements are stricter. The tax manual of the canton of Solothurn states that such policies require a minimum term of ten years and that the Federal Tax Administration reviews whether they contain adequate risk protection before they are recognised as serving pension purposes.¹¹ A wrapper in which the policyholder in substance continues to manage his own portfolio, with no meaningful insurance risk, will not pass this test. During the life of the contract, the surrender value of a repurchasable policy is subject to cantonal wealth tax.

Two federal taxes complete the picture. The federal withholding tax applies to capital benefits from life insurance at 8 per cent and to annuities at 15 per cent, but only if the insurance belongs to the Swiss portfolio of the insurer and the policyholder or beneficiary is resident in Switzerland when the insured event occurs. Capital benefits of up to CHF 5,000 are exempt. In most cases the insurer reports the payment to the Federal Tax Administration in place of deducting the tax, unless the beneficiary objects.¹² The stamp duty on insurance premiums, finally, is levied at 5 per cent on most non-life premiums and at 2.5 per cent on repurchasable life insurance financed by a single premium, while life insurance with periodic premiums is exempt.¹³ For a Swiss resident who places a large portfolio into a single-premium wrapper, the stamp duty alone is a significant cost that has to be weighed against any benefit.

Reporting under the automatic exchange of information

The international tax transparency that transformed Swiss private banking after 2008 applies to insurance as well. Switzerland introduced the automatic exchange of financial account information under the OECD Common Reporting Standard with effect from 1 January 2017. Reporting financial institutions under Swiss law include insurers that issue cash value insurance or annuity contracts. Zurich Insurance explains to its Swiss clients that since 1 January 2017 it has had to establish the tax residence of policyholders, and that it reports names, addresses, dates of birth, tax residences and tax identification numbers together with account numbers, balances, earnings, surrender values and payments. The first exchange took place in 2018 for 2017 data.¹⁴ In the exchange of 2022 the Federal Tax Administration sent information on about 3.4 million financial accounts to 101 partner states. Some 9,000 reporting institutions, among them banks, trustees and insurers, delivered the data.¹⁵

The standard continues to develop. On 26 November 2025 the Federal Council approved amendments to the ordinance on the international automatic exchange of information to implement the revised Common Reporting Standard and the Crypto-Asset Reporting Framework, with the amendments expected to apply from 1 January 2026 and the crypto framework deferred to 2027 at the earliest.¹⁶ For the wrapper business, automatic exchange has removed the possibility that an insurance contract might hide assets from the tax authorities of the policyholder’s country of residence. What remains is the question whether that country respects the insurance form for tax purposes. That question belongs to substantive tax law, where the answer differs from country to country.

Misuse, enforcement and legitimate use

The insurance wrapper attracted the attention of supervisors in the years when Swiss banking secrecy was being dismantled. The concern was that a bank client who wished to remain anonymous to the bank, or to escape the identification of beneficial owners, might interpose an insurer between himself and the bank. FINMA addressed the question in a communication of 27 April 2010 and, after consultation with the industry, in FINMA Communication 18 (2010) of 30 December 2010 on the treatment of life insurance with separate account or custody management.¹⁷ Grolimund and Villard summarise its central principle as a double check. Banks had to identify the policyholder as beneficial owner where an existing account was transferred into a life policy, where the policyholder kept a power of attorney or a right to information, where he negotiated the investment strategy directly, or where there was no confirmation that the wrapper satisfied the requirements of the policyholder’s country of residence. The insurer, for its part, remained bound by its own anti-money laundering obligations. The effect was that the insurance wrapper could no longer be used to make the beneficial owner invisible to the bank.

The most serious enforcement case arose in the United States. On 14 May 2021 the Department of Justice announced that Swiss Life Holding AG and its subsidiaries in Liechtenstein, Singapore and Luxembourg had admitted conspiring with United States taxpayers to conceal assets and income through about 1,608 private placement life insurance policies. The companies agreed to pay USD 77,374,337, made up of restitution, forfeiture of fees and a penalty, under a deferred prosecution agreement with a term of three years. According to the Department, the policies had been used between 2005 and 2014 in ways that included naming foreign relatives as policyholders, placing accounts in the insurer’s name and routing documents through intermediaries.¹⁸ The case confirmed what the bank programme of the United States had shown for banks between 2013 and 2016: an institution that offered structures to American clients without ensuring their tax compliance faced prosecution in the United States, wherever the institution was domiciled.

American law itself recognises private placement life insurance when it complies with the Internal Revenue Code. A policy must meet the definition of life insurance in section 7702, its separate accounts must satisfy the diversification rules of section 817(h), which require at least five investments with no single investment exceeding 55 per cent of the account, and the policyholder must not control the investments under the investor control doctrine. A foreign insurer that does not elect to be taxed as a United States insurer is subject to a 1 per cent excise tax on premiums. Compliant policies offer tax deferral on investment income and income-tax-free death benefits. These requirements show that the dividing line between legitimate and abusive wrappers is drawn by the substance of the insurance relationship. The same line appears, in different words, in Swiss practice on unit-linked insurance.

Legitimate uses of insurance wrappers remain numerous. An internationally mobile family may want a single contract that holds a portfolio across changes of residence and can be adapted to the tax rules of each new country. A client may wish to designate beneficiaries with precision, including in jurisdictions where succession procedures are slow or where probate is public. A contract with a Luxembourg or Liechtenstein insurer offers segregation of assets and priority rights that can protect the policyholder against the insolvency of the insurer. A Swiss policy with family beneficiaries enjoys the protection of Article 80 of the Insurance Contract Act. Institutions such as foundations and pension schemes may use insurance contracts to hold assets in a form that suits their liabilities. In each case the adviser must document the purpose, verify tax compliance in every relevant jurisdiction and ensure that the insurance element is genuine. The experience of the past two decades suggests that wrappers which serve a real purpose survive regulatory change, while those designed to exploit gaps in information disappear once the gaps are closed.

Notes

1. Pascal Grolimund and Alain Villard (Bratschi), “Versicherungs-Wrapper in der Schweiz” (2011), on the definition of the insurance wrapper, the triangular relationship between policyholder, insurer and bank, the FINMA communications of April and December 2010 and the double check of beneficial ownership by bank and insurer, https://www.bratschi.ch/assets/content/files/publikationen/Insurance_Wrapper_in_der_Schweiz.pdf. ↩
2. Scott A. Bowman and Nathan R. Brown, “A Primer on Private Placement Life Insurance”, The Florida Bar Journal, vol. 88, no. 7 (July/August 2014), on the definition of PPLI, the tests of IRC section 7702, the diversification requirements of section 817(h), the investor control doctrine and the tax treatment of foreign insurers, https://www.floridabar.org/the-florida-bar-journal/a-primer-on-private-placement-life-insurance/. ↩
3. ACA (Association des Compagnies d’Assurances et de Réassurances du Grand-Duché de Luxembourg), “A reinforced Luxembourg Triangle of Security”, on the roles of insurer, custodian bank and Commissariat aux Assurances, the super-privilege of policyholders and the reforms of the law of 10 August 2018, https://www.aca.lu/en/a-reinforced-luxembourg-triangle-of-security/. ↩
4. Molitor Avocats à la Cour, “The insolvency of FWU Life Insurance Lux S.A. – a first stress test of the enhanced triangle of security?” (13 August 2024), on the notification of 19 July 2024, the freezing of assets on 23 July 2024, the stay of payment granted on 2 August 2024, liabilities and assets of about EUR 1.1 billion and the operation of the triangle of security, https://molitorlegal.lu/the-insolvency-of-fwu-life-insurance-lux-s-a-a-first-stress-test-of-the-enhanced-triangle-of-security/. ↩
5. Finanzmarktaufsicht Liechtenstein (FMA), “Finanzplatz Liechtenstein”, edition 2024, on thirty-two insurers at end-2023, gross premiums of CHF 5.74 billion (life CHF 2.34 billion), the focus of life insurers on unit-linked business and the main markets by premiums in 2022, https://www.fma-li.li/fma-li/documents/publikationen/finanzplatz-liechtenstein/fma_finanzplatz_liechtenstein_2024_d_rz_interaktiv.pdf. ↩
6. SWI swissinfo.ch, “Swiss Life/Bâloise: Verschärfte FINMA-Regeln bei Insurance Wrappers ohne Folgen” (5 January 2011), on the growth of Swiss Life’s PPLI business to CHF 4.1 billion in the first nine months of 2010 and of Bâloise’s life business driven by its Luxembourg and Liechtenstein subsidiaries, https://www.swissinfo.ch/ger/swiss-life-b%C3%A2loise-verschaerfte-finma-regeln-bei-insurance-wrappers-ohne-folgen/29174114. ↩
7. LAW.CH, “LAWINFO – Konkursverwertung – Lebensversicherungen”, on the inclusion of life insurance claims in the bankruptcy estate, the lapse of revocable designations under Article 79 VVG, the exclusion of enforcement under Article 80 VVG where spouse, registered partner or descendants are beneficiaries, the takeover right under Article 86 VVG and the application of avoidance actions under Articles 285 et seq. SchKG, https://law.ch/lawinfo/konkursverwertung/verwertungs-objekte/lebensversicherungen/. ↩
8. law.ch, “Pfandrechtsforderung Dritter am Versicherungsanspruch”, on the entry of the beneficiaries into the contract with all rights and obligations under Article 81 VVG upon the opening of bankruptcy, unless they expressly decline, so that the claim falls outside the bankruptcy estate, https://law.ch/lawinfo/kollokationsverfahren-kollokationsplan-lastenverzeichnis/kollokationsplan/bestand-forderung/pfandrechtsforderung-dritter-am-versicherungsanspruch/. ↩
9. Kanton Aargau, Kantonales Steueramt, Merkblatt “Besteuerung der freien Vorsorge (Säule 3b)” (2025), on the tax exemption under Article 24 lit. b DBG for repurchasable capital insurance with periodic premiums, the conditions for tax-free single-premium insurance (payout after age 60, minimum term of five years, conclusion before age 66) and the wealth tax on the surrender value, https://www.ag.ch/media/kanton-aargau/dfr/dokumente/steuern/natuerliche-personen/merkblaetter-zu-steuern-natuerliche-personen/besteuerung-freie-vorsorge-s-ule-3b-2025.pdf. ↩
10. Steuerverwaltung Graubünden, Praxisfestlegung 029-b-01 “Kapitalversicherung mit Einmalprämie” (1 February 2024), on ESTV Circular No. 24 of 30 June 1995, the requirement that single-premium insurance serve pension provision, the conditions of age 60, five years and conclusion before age 66, and the rules on debt-financed premiums, https://www.gr.ch/DE/institutionen/verwaltung/dfg/stv/dokumentation/praxis/PraxisEinkommenVermgen/029-b-01.pdf. ↩
11. Kanton Solothurn, Steuerbuch, § 26 Nr. 1 “Einmalprämienversicherung”, on the definition of single-premium insurance, the taxation of the difference between payout and premium where the conditions are not met, the reference to ESTV Circular No. 24 of 30 June 1995 and the ten-year minimum term and ESTV review of risk protection for fund- and index-linked policies, https://steuerbuch.so.ch/steuern/einkommenssteuer/ertraege-aus-beweglichem-vermoegen-und-vermoegensverwaltungskosten/26-nr-1/. ↩
12. Eidgenössische Steuerverwaltung (ESTV), “Die Eidgenössische Verrechnungssteuer” (Stand der Gesetzgebung 1. Januar 2024), on the withholding tax on insurance benefits under Articles 7, 8, 13 and 19 VStG: rates of 8 per cent on capital benefits and 15 per cent on annuities, the CHF 5,000 threshold, the requirement of a domestic portfolio and Swiss residence, and the reporting procedure with the right of objection, https://www.estv.admin.ch/dam/estv/de/dokumente/estv/steuersystem/dossier-steuerinformationen/d/d-eidgenoessische-verrechnungssteuer.pdf.download.pdf/d-eidgenoessische-verrechnungssteuer.pdf. ↩
13. ESTV, “Abgabe auf Versicherungsprämien kurz erklärt”, on the standard rate of 5 per cent, the reduced rate of 2.5 per cent for single-premium life insurance, the exemption of life insurance with periodic premiums and of health, accident, disability and unemployment insurance, and the liability of the domestic insurer, https://www.estv.admin.ch/estv/de/home/bundesabgaben/stempelabgaben/sta-fachinformationen/abgabe-auf-versicherungspraemien.html. ↩
14. Zurich Insurance (Switzerland), “Automatic exchange”, on the obligation of Swiss financial institutions since 1 January 2017 to clarify the tax residence of customers, the reportability of life insurance contracts and the data reported, and the first exchange in 2018 for 2017, https://www.zurich.ch/en/automatic-exchange. ↩
15. ESTV, “Exchange of information with 101 countries on around 3.4 million financial accounts” (22 September 2022), on the number of partner states and accounts, the entry into force of the legal basis on 1 January 2017 and the approximately 9,000 reporting institutions including insurers, https://www.estv.admin.ch/en/aeoi-exchange-of-information-with-101-countries. ↩
16. KPMG, TaxNewsFlash “Switzerland: CARF and CRS amendments” (December 2025), on the Federal Council’s approval on 26 November 2025 of amendments to the AEOI Ordinance implementing CRS 2.0 and CARF, with expected entry into force on 1 January 2026 and CARF implementation deferred to 2027 at the earliest, https://kpmg.com/kpmg-us/content/dam/kpmg/taxnewsflash/pdf/2025/12/tnf-fatca-switzerland-dec-4-2025.pdf. ↩
17. FINMA, “FINMA-Mitteilung 18 (2010) – Behandlung von Lebensversicherungen mit separater Konto-/Depotführung” (4 January 2011), on the publication of the communication of 30 December 2010, which superseded FINMA Communication 9 (2010) of 27 April 2010, https://www.finma.ch/de/news/2011/01/aktuell-finma-mitteilung-18-2010-20110104/. ↩
18. United States Department of Justice, Office of Public Affairs, “Switzerland’s Largest Insurance Company and Three Subsidiaries Admit to Conspiring with U.S. Taxpayers to Hide Assets and Income in Offshore Accounts” (14 May 2021), on the entities involved, the 1,608 PPLI policies, the payment of USD 77,374,337, the three-year deferred prosecution agreement and the concealment methods, https://www.justice.gov/archives/opa/pr/switzerland-s-largest-insurance-company-and-three-subsidiaries-admit-conspiring-us-taxpayers. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.