Asset protection guaranteed by law
An insurance company-based solution may be protected by insurance law against creditors or other claimants in a legal process and bankruptcy proceedings when issued by an insurance company in an appropriate jurisdiction. DVA and PPLI policies can provide asset protection if the policy is set up in the right way and in a timely manner. The policy's underlying investment portfolio can be managed by Swiss SEC RIAs, if they are designated to do so (or other designated asset manager).
The right way
- Spouse or children are designated as revocable beneficiaries
or, a third party is designated as an irrevocable beneficiary
- The designation was not made with the intent to damage creditors
A timely manner
- At least one year before any problems arise
Strict insurance laws guarantee that a policy will be protected against any debt collection procedures instituted by the creditors of the policyholder and it will also not be included in bankruptcy procedures.
Even if a foreign judgment or court order expressly decrees the seizure of the policy, or its inclusion in the estate in bankruptcy, the insurance company will not comply as the ownership of the policy will have passed on to the designated beneficiaries and the initial policyholder will no longer have power over the policy.
If the insurance company receives notice from the policyholder revoking the beneficiary designation, the insurance company may come to the conclusion that the instructions received from the policyholder do not express the policyholder's true intent and were made under duress, forced upon him by the foreign judge or court. The instructions will be ignored and ownership transferred to the designated beneficiaries.
In case of the highly unlikely event that the insurance company in the appropriate jurisdiction should become insolvent, certain mechanisms are in place to protect the policyholder's assets. Preferential rights are granted to policyholders over a part of the insurance company’s assets, which constitute a segregated group of assets allocated to guarantee the payment of insurance claims.
The policy assets are segregated from all other assets of the insurance company and in particular from all other liabilities, forming a separate bankruptcy estate. The administration and management of the segregated assets are strictly separated from the administration and management of all other assets of the insurance company in case of bankruptcy.
These segregated assets are used exclusively to satisfy any claims arising under an insurance policy (especially claims of policy holders and beneficiaries). Claims that are not covered by 100% after the liquidation of the separate bankruptcy estate will be ranked as insolvency claims of the first class, to be covered by the assets falling into the general bankruptcy estate of the insurance company. Claims ranked in the first class are privileged and therefore, precede other claims.