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The underlying assets, definitions and examples

The underlying assets include traditional assets (bonds, equities, etc.) and less traditional assets (private equity, structured products, real estate funds, etc.). They can be combined within a life insurance contract. Decoding the regulation and the opportunities offered.

Underlying assets: a broad selection for a well-diversified portfolio

The wide range of the underlying assets in the contract allows a good diversification of the portfolio

The investments contained in a Luxembourg life insurance policy are subject to a series of eligibility rules defined by circular letter no. 15/3 (LC15/3) from the Commissariat aux Assurances (‘Luxembourg Insurance Control Authority or ‘CAA’).

The investment rules defined by the Commissariat aux Assurances

Circular letter 15/3 provides for five types of policy defined on the basis of two criteria, namely:

  • the premium invested in all the policies subscribed with the insurance company; and
  • a declaration of the policyholder's movable assets.
Type of policy Premium invested (in EUR) Movable assets1 (in EUR)
N Default Default
A 125 000 250 000
B 250 000 500 000 
C 250 000 1 250 000
D 1 000 000  2 500 000 

 

As discussed in the chapter "The unit-linked life insurance policy", the regulations in Luxembourg provide for various investment vehicles such as external funds, internal dedicated and collective insurance funds, and specialised insurance funds within unit-linked policies.

Examples of underlying assets

All the investment vehicles provide access to a wide range of underlying assets:

  • Traditional assets such as:
    • bonds
    • shares
    • UCITS
    • derivative products 
  • Alternative assets such as:
    • structured products 
    • alternative funds (hedge funds and private equity)
    • real estate funds

Each of these asset classes may be held within a life insurance policy based on the restrictions imposed by the circular letter and their compatibility with the policyholder's investment profile.

Luxembourg, a competence centre for portfolio diversification

The Luxembourg legislature is particularly attentive to the market and to the needs of wealthy investors and thus allows life insurance to be combined with private equity or with real estate.

In recent years, new trends have emerged and new structures such as the Reserved Alternative Investment Fund (or ‘RAIF’) have been introduced.
It is also possible to diversify one’s portfolio by using ETFs or socially responsible funds.

The opportunities for diversification offered by life insurance policies are therefore very broad and confirm the position of life insurance policies as the optimal estate planning and management tool.

 

Valuation of movable assets: the total value of the policyholder's financial instruments, plus bank deposits and the value of his life insurance and accumulation policies, less all types of debt (Circular 15/3 from the Commissariat aux Assurances).

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