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This article was originally published on Asian Private Banker. Read the article here.  

HNWIs seeking a tax-efficient structure for their assets haven’t had too many insurance product options. In terms of insurance and estate planning for UHNW clients in Asia in particular, the development of the life insurance product has been fairly limited to the standard universal life policy.

This has been a tried-and-tested solution and an integral part of many financial portfolios to manage mortality risk and legacy planning. Universal life policy has long been a recognised staple of the private wealth management life insurance market.

But the concept of private placement life insurance (PPLI) is fast gaining steam in Asia, after being a core part of portfolio planning in Europe and the US.

Substantial financial reform, new tax compliance standards and the “explosive growth” of the Asian HNW segment have helped create an expansive wealth market, with needs having evolved beyond the traditional private wealth and life insurance solutions of the past, Jason Tsui, managing director for Institutional Business, Lombard International told Asian Private Banker.

The PPLI structure allows for bespoke planning and the ability to preserve, protect and pass on wealth to the next generation, said Tsui.

Asia, which is relatively young and does not have the “old money” heritage of the US or Europe, is an important market for PPLI, said Tsui.

“A generation of Asia’s affluent is reaching the point in their lives where they. are looking to retire and are focused more on the preservation of their wealth over generation,” he added.

Family and assets all over the world

Research by Asian Private Banker in 2019 showed the size of the PPLI market to be still relatively small at about 5% of the total insurance product mix. But Tsui says the fast-growth and potential for this sector has been noticed by many private bankers in Asia, even though succession planning itself is not as widely focused on in Asia, as compared to Europe or the US.

In relative terms, the product’s adoption has grown by 150% from 2018-2019, data showed. As a category itself, life insurance’s popularity as a succession planning tool is due to its various favourable features — in addition to its traditional protection coverage, it can support in areas such as estate liquidity and portfolio diversification amongst others, according to Asian Private Banker research.

  2018 2019
Universal Life 75% 61%
Whole of Life 16% 23%
Term Life 2% 2%
Joint Life 2% 2%
Investment-linked life < 1% < 1%
VUL 1% 1%
PPLI 2% 5%
Other 1% 4%

“The demand for PPLI in Asia has grown significantly, as Asia’s affluent may have family and assets all over the world,” said Tsui. “They will require more global cross-border wealth management solutions to protect their interests and provide them with accessibility to new markets.” Lombard International works with over 200 custodian banks and over 900 investment managers, administering over US$53.1 billion of client funds as of 30 June 2020, he added.

Multiple advantages

The product scores over traditional universal life insurance at multiple levels, Tsui told APB.

From a tax perspective, PPLI offers taxation benefits and can protect families against loss events, such as debt repayment, taxation or key person risk, said Tsui.

From a private bank’s perspective, a PPLI policy can help retain assets for the bank, attract new assets and new clients, while providing revenues on non-bankable assets and even assets with other banks, said Tsui. PPLI helps bring upfront fees and trailer fees, and assists with differentiating the bank with clients by bringing a new product offering into focus, he added.

In terms of structure, PPLI buyers benefit in that — unlike a traditional life insurance policy that only accepts cashbased premiums — a PPLI policy can be supplemented through various assets of the UHNW, Tsui told Asian Private Banker. “This includes “non-bankable” assets such as various equities, commercial real estate,” he said.

“Consolidating everything within the PPLI allows the client to maintain existing relationships with trusted advisors whilst at the same time future-proofing their current structures,” he said.

This would help provide a matriarch or patriarch and their family with a much clearer succession plan on how the shares of their assets are to be distributed as they are able to determine the beneficiaries of the PPLI, said Tsui. These may be changed at any point, such as adding subsequent grandchildren, giving flexibility for this to evolve over time, he added.

“This provides significant peace of mind compared to the lengthy alternative of going through probate to determine who should eventually receive the shares of the company,” explained Tsui.

Jason Tsui
  Jason Tsui
Managing Director, Asia Brokerage
Lombard International