• Immediate access to funds

When you pass away, your estate will be subject to probate which can take many months to complete. While that is going on, your assets in the estate are tied up and cannot be accessed by your family. This could leave them without enough funds for household expenses and to pay bills.

In comparison, the funds from a life insurance policy can be made available very quickly. If you had made a nomination, the insurance payout can be as soon as one to two weeks. If you did not make a nomination, your family can still claim up to $150,000 per insurance company before probate is completed.

• To enhance legacy

Henry bought a $2 million life insurance policy for his son and to leave some money for his church. As his son is young, he has used a Trust to hold the policy. When he passes away, the payout will be managed by the Trustee to give regular sums of money to his son for his upkeep, medical expenses and education. He also sets aside $50,000 for his church to be given $10,000 per year for five years.

• To pay debts

Doris owns a $3 million condo as joint tenants with her husband. The condo has a mortgage remaining of $1.5 million. Doris bought a life insurance policy and mentioned in her Will that the remaining mortgage should be fully paid for by the insurance payout. Doris wants her husband to own the condo after her death without any debt remaining.

• To equalise the estate

Paul’s wife passed away a few years ago. He has a son and daughter. He has $5 million he wants to give his son. He has a condo worth $2 million that he wants his daughter to receive. In order to equalise the gifts for his children, Paul bought a $3 million insurance policy and nominated his daughter to receive the proceeds.

• To protect the business

Judy owns a successful car parts trading company that she wants to pass to her 25-year-old son. She is concerned that if she passes away suddenly, her son may not be ready to take over yet. The company has $1 million in liabilities and she has signed some personal guarantees. She buys a $2 million policy that on her death would pay up the $1 million of liabilities and provide a financial buffer of $1 million for her son to stabilise the company.

VUL (or commonly called Private Placement Life Insurance (PPLI)) is a permanent life insurance policy that allows you to put your assets into a “variable account” comprised of financial assets. VULs are flexible in what insurers can accept as an asset.

The dual nature of VUL provides you with valuable life insurance coverage, along with a cash-value component that permits you control over where you want to allocate the cash-value portion of your policy for greater earning potential.

• For VUL plans, the premiums paid are managed by insurance companies and any bonuses declared are subject to the insurer’s performance and discretion. The policy owner does not participate in the decision making of how the premiums are invested or how much bonus is declared.

• For VUL plans, the policyholder can retain full control of investment assets and continue to invest them himself. He also has the flexibility to withdraw the profits of his investments.

VUL is geared towards someone who already owns multiple life insurance policies and has investment portfolios whether self-managed or under management with private banks and asset managers.

A person with such a profile is most suitable for VUL because he can obtain multiple times of additional coverage through his existing investment portfolio, enjoy tax deferral benefits and maintain confidentiality of the policy’s underlying assets.

VULs are suitable for more affluent clients who typically have US$1 million or more in financial assets to set up the VUL.