What is a Life Insurance Contract?
The Luxembourg life insurance contract is a contract by which an insurance company undertakes, in return for payment of a premium, to be paid to a person (the beneficiary) designated by the insured to death (From a legal point of view, death is an uncertain event), a capital whose amount or the method of evaluation are lad down in the contract clauses.
The three contracting parties: the insured, the insurance company and the beneficiary. the company:
a) bears the risk and
b) agrees to pay the amount due to the beneficiary on the death of the insured.
The Purpose of Life Insurance Contracts
A life insurance contract in Luxembourg is an investment which combines the following within the framework of a long term investment approach:
Various financial vehicles;
A specific legal framework;
A preferential tax framework.
Life Insurance Contract as an Investment Vehicle
When Luxembourg life insurance contract is used as an investment vehicle, it allows investors to combine financial and patrimonial objectives. In the past life insurance has gradually opened up to investment funds and thus to stock markets. Similarly, its legal framework is simple and legal means of ensuring transfer of constituted assets on good terms and sometimes with the benefit of advantageous fiscal measures are in place.
Investors may use the Luxembourg life insurance contract to invest their savings in one or more investment funds (collective investment fund, i.e. unit trust, or investment trust) in order to receive revenues. The Luxembourg life insurance contract may invest in several investment funds at a time and is therefore said to use a “unit-linked policy”. In addition investors can access guaranteed rate monetary products.
Advantages of Investment Funds
First, due to its pooling characteristics private insurance companies can invest in a vast number of investment funds thus allowing investors a dispersion of their capital and a limitation of risks through various styles of management, different strategies and different categories of assets. Such diversification provides greater protection from market risks.
Second, an investment fund comprises various stocks and shares offered by various issuers. This broad diversification of the underlying assets is an important additional factor which reduces investment risks. Such type of risk reduction is not possible within the management framework based on directly purchased shares or bonds.
Finally, investment funds are managed by financial management professionals who possess know-how, expertise and knowledge of financial markets, which is a necessity to secure good performance of investment funds.
Asset Transfer Tool
Under the terms of the Luxembourg life insurance contract the insurer promises the policyholder, in return for premium(s) payment , to pay to the beneficiary designated by such policyholder, a sum of money in the event of death of the insured, the value of which or the method of valorisation of which is established by a contract. The parties to the life insurance contract are the policyholder, the insured and the beneficiary. The insurance company bears the risk and undertakes to pay the sum due to the beneficiary in the event of death of the insured. The payment on the basis of the contract is linked to an uncertain event, which is a hazard lying within the sphere of the insured.