What Is An Insurance Wrapper?

The term ‘insurance wrapper’ refers to a life insurance policy that is ‘wrapped’ around the policy owner’s investment portfolio and is held and controlled by the insurance company until the policy’s terms are met. A conventional insurance wrapper allows a person to buy a life insurance policy, either for himself or for someone else, by paying a premium – typically a one-time premium equal to the total investment portfolio – that accumulates income at low or no tax rates. The portfolio might be mixed in with the insurer’s premium-sourced assets, or it could be kept separate in some situations, with the policy owner dictating the investment policy.

When the insurer pays out the insurance proceeds in accordance with the policy’s terms, they will be made up of the investment portfolio plus any income earned on it – ‘the savings component’ – and an additional fixed amount calculated using the relevant actuarial tables based on the premiums paid – ‘the risk component.’

The use of insurance wrappers as a means of asset protection is based on Israeli law. According to Section 147 of the Israeli Inheritance Law – 1965 (Inheritance Law), amounts payable in the event of a person’s death under insurance contracts, as a result of his membership in a pension fund or benefit fund, or on similar grounds, are not part of his estate unless it was specifically stated that they should. If the policyholder irrevocably elects a beneficiary, Section 13 of the Israeli Insurance Contract Law-1981 states that any transfer or pledge of the policyholder’s rights requires the beneficiary’s prior written consent, and the policyholder’s debtors are not allowed to register a lien on such rights. The Tel-Aviv District Court recently held that the rights of the beneficiaries override the rights of the creditors who lodged a lien prior to the policy holder’s death (2155/09 Tadmir Aguda vs. Yael Yaron and others), even if the insurance holder had not irreversibly picked a beneficiary. We will not examine instances where the beneficiaries were not irrevocably elected in this post because the matter is still being reviewed by the Supreme Court.

Given the foregoing, money payable upon the death of a policy holder do not form part of his estate, and the right of the policy’s beneficiaries, if elected irrevocably, outweighs the right of the policy holder’s debtors. As a result, insurance wrappers are a very effective asset protection tool since they take the money payable under the risk component out of the insured’s estate and give further security to the beneficiaries against future debtor claims. The question of whether the saving component is covered in the same way by prospective claims of the insured’s debtor has been left unanswered by Israeli law.

The taxation of insurance wrappers can be divided into two phases for the sake of this article, and just as a quick summary. Unless the portfolio invested under the policy includes Israeli assets that yield Israeli derived revenue, the income received in the insured’s investment portfolio with the insurer is not subject to Israeli tax during the policy’s lifespan. In other words, the insurer’s only tax liability for investment income earned over the policy’s duration would be in the country in which it is based.

Following the occurrence of the insurance event and the policy’s maturity, the Ordinance states that “A sum received only on the risk component included in the life insurance policy, exclusive of a sum received or derived from the savings component” is tax exempt if the beneficiaries are relatives of the insured (spouse, brother, sister, parent, grandparent, offspring, offspring of spouse, and a spouse of any of the above, including an offspring of a brother or sister and a brother or sister of a parent, and a trustee in relation to any of the above, and a trustee in relation to The non-exempt risk component (i.e., where the beneficiary is not a relative of the insured or where the insurance owner deducted the premium as an expense) is subject to the standard graded prevailing progressive income tax rate – currently up to a maximum of 48 percent.

Profits obtained by an individual from the savings component of a life insurance policy (referred to as a’savings plan’ in the Ordinance) are taxed at the same rate as interest income in provident funds or savings plans under the Ordinance, i.e., 25%, except in certain circumstances.

To summarize, the policy holder receives a full tax deferral on the saving component for the policy’s term as long as that component does not include Israeli assets, and the risk component is in most cases tax exempt upon policy maturity if it meets the preconditions outlined above.

We suggest a method based on the combination of trusts and insurance wrappers to achieve an even stronger structure for asset protection purposes (Proposed Solution). According to our Proposed Solution, a trust will be established, and the trustee of that trust (Trust and Trustee, respectively) will use the trust funds to purchase an insurance wrapper. The Trust will hold the insurance wrapper as well as be the beneficiary of the insurance wrapper. When the insurance matures, the proceeds will be paid to the Trustee, who will then distribute the funds to the Trust’s beneficiaries in line with the trust deed’s stipulations.

The funds under the Trust will not only be protected from potential claims of the settlor’s debtor by virtue of Section 3 of the Israeli Trust Law-1979, which states that “the funds under the Trust will not only be protected from potential claims of the settlor’s debtor by virtue of Section 3 of the Israeli Trust Law-1979, which states that “the funds under the Trust will not only be protected from potential claims of the settlor’s debtor by virtue of Section 3 “No recourse can be had against the trust’s assets except for debts accruing in respect of the assets or debts arising from the trust’s acts,” but also because the funds are vested in an insurance product and thus under the control of the insurer (preferably in a foreign jurisdiction), who is only bound by the terms of the underlying insurance policy and applicable law.

Furthermore, as previously mentioned, such Proposed Solution will obtain a tax deferral on the income generated by the saving component of the insurance wrapper, allowing the trustee to report and pay the applicable taxes only when the policy underlying the insurance wrapper matures, as a result of the Trust Amendment, which subjects foreign resident trusts with Israeli beneficiaries to taxation on their yearly income.

What is a wrapper in financial terms?

Wrappers are a strategy to structure investment portfolios in the most tax-efficient way possible. Individual Savings Accounts (ISAs) and Pension Plans are common wrappers in the advise process, but there are others that can be employed depending on your specific circumstances and tax situation.

What is a life wrapper investment?

Financial services organizations with life insurance licenses can offer their clients investment portfolios that are “wrapped” around products that life insurers can develop, administer, and sell.

A life insurance product (typically a life insurance policy or an endowment policy) is “wrapped” around the financial portfolio of the policy owner. The insurance company owns and controls it until the benefit or payment is triggered in the policyholder’s favor under the policy’s conditions. This is usually the insured event or the maturity of the insurance.

A conventional insurance wrapper allows a person to pay a premium and purchase a life insurance policy, either for themselves or for someone else (usually but not always a one-off premium). When the insurer pays out the benefit under the policy’s conditions, it includes the initial policy’s value as well as the growth of the investment portfolio (or loss).

In South Africa, insurance-based wrappers have grown in popularity as a result of taxpayers wanting to structure their affairs in a tax-efficient manner, the contraction of the Johannesburg Stock Exchange, and a wider selection of offshore investment alternatives.

The reader makes no mention of the type of wrapping policy they were sold. Wrapped investments, on the other hand, often aim to provide a diverse variety of underlying assets (including exchange-traded funds, as per the question) spread across multiple jurisdictions and in the investor’s preferred foreign currency. Some plans allow policyholders to invest in global equities on a discretionary or execution basis directly through many stockbroking service providers.

Endowments and life insurance plans are typically constructed to maximize tax efficiency in addition to a diverse range of underlying holdings and consolidated reporting (be it estate duty tax, capital gains tax, dividend tax, tax on interest earned or foreign dividends tax).

Local tax regulations apply if the assets are held within an SA-domiciled insurance policy. The insurer is responsible for calculating, collecting, and administering any tax due if the ETF or portfolio of ETFs is “housed” under a life insurance policy in the reader’s situation. The insurance policy’s personal tax management is not the responsibility of the policy owner.

These policies appeal to investors who assess the tax payable on the policy to be lower than the tax payable if the assets were owned in their personal capacity. The policy regulations encompass the terms and conditions of due taxes, beneficiary nominations, and estate duty application in general.

The individual is liable for reporting and paying any necessary taxes if the portfolio was not held in a locally domiciled life or endowment insurance and was owned directly by the individual. It would be impractical to discuss all of the possibilities that might be relevant to different investors in this response since it would be too lengthy. A skilled tax expert will be able to help you with any problems that occur.

One of the basic tenets of any financial decision is that it should not be made purely for tax reasons. By all means, set up your investments in a tax-efficient manner. However, make sure the tax/cost-benefit ratio is worth the extra cost and complexity.

You should double-check that the wrapper structure is suitable for your needs. Endowment policies are often advantageous if the policyholder would otherwise pay the highest marginal tax rate; however, taxpayers who are taxed at lower rates do not benefit as much.

Endowment schemes must be sufficiently funded to exceed the threshold at which tax advantages begin to accrue.

As a result, we strongly advise conducting a comprehensive cost-benefit analysis of these products prior to making a purchase. Before proceeding, have your financial advisor compute all fees and show them to you in both percentage and rand figures.

Wrapper structures, like all investment products, are subject to internal product rules as well as changing state or national tax legislation in the domicile country or the offshore investment destination. However, because the rules are subject to change, the risk of change, as well as the potential consequences of changes, should be considered.

It’s vital that investors reap the full benefits of underlying holdings’ investing mandates. In certain countries, certain types of underlying holdings are much more tax-efficient than others. Investing in simpler structures could potentially provide investors with similar tax savings.

What is a tax wrapper?

The term ‘tax wrapper’ is frequently used when discussing ISAs and pensions. This simply implies that your funds are held in an account that ‘wraps’ around your investments or savings to provide tax protection as long as the funds remain within the wrappers. There are various types of tax wrappers – ISAs and pensions are two of the most common – and each wrapper provides a different tax position and flexibility.

What is a life policy investment?

Permanent life insurance policies with an investing component allow you to increase your money while avoiding paying taxes. This implies that any interest, dividends, or capital gains earned on the cash-value component of your life insurance policy are tax-free until the proceeds are withdrawn.

What is a wrapper legal?

File wrapper estoppel (see also file wrapper estoppel at estoppel sense 1) is a written record in a patent office of the application and discussions for a patent prior to the granting of the patent.

Are wrap fees worth it?

Wrap accounts, in which brokerage account charges are “wrapped” into a single or flat fee, are ideal if you don’t have time to invest and prefer to have your assets managed by a money manager.

What is an offshore life wrapper?

If you have assets outside of South Africa, your estate may be subject to foreign tax after you die. Certain investible assets (e.g. ETFs and shares) can be held in an offshore life wrapper or policy to avoid foreign estate taxes, often known as inheritance taxes. According to Colin Archibald, Regional Manager of Glacier International, the potential cost and tax savings are enormous. He delves into foreign inheritance tax and the benefits of using offshore life wrappers to reduce these costs.

About situs assets and how they are taxed

‘Situs’ is Latin for ‘position’ or’site,’ and refers to the location of an asset (for example, fixed property, collective investments, shares, and ETFs). The focus of this essay is on having investment assets in the United States or the United Kingdom. The physical location of immovable property or the site where, for example, a share register is kept and maintained are examples of situs regulations for inheritance/estate tax purposes that vary by nation. As a non-resident, your overseas assets (those worth more than $60 000 in the US and £325 000 in the UK) may be subject to inheritance tax in the UK or federal estate tax in the US, which can be as high as 40%. Furthermore, the assets will be included in your South African estate for the purposes of estate duty. In South Africa, estate duty is currently set at 20% for dutiable estates under R30 million and 25% for estates over R30 million.

It’s worth noting that South Africa has double estate duty agreements with only a few countries, including the United States, the United Kingdom, Botswana, Lesotho, Swaziland, and Zimbabwe. This means that, in the case of the United Kingdom and the United States, inheritance tax payable in South Africa is typically reduced by estate duty due in those countries. Even after a credit has been issued in SA against the SA estate duty responsibility, depending on the value of the assets in the US and UK, the rates might be as high as 40%, which is substantially higher than the SA estate duty rate.

What you should know about investing in an offshore life wrapper

In an offshore wrapper issued by a South African insurer, you can name beneficiaries. The Glacier International Global Life Plan is one example. As a result, the wrapper will be exempt from the dead estate’s standard administration procedures. This means that, unlike with assets held personally, you won’t need an offshore will or testament, nor will you need to get foreign probate to deal with the offshore wrapper. These procedures are usually both costly and time-consuming. Holding the investments in an offshore wrapper also protects the assets from any prospective foreign inheritance tax.

Furthermore, the investments in the wrapper can be continued in the names of those beneficiaries, or they can elect to receive the investment proceeds from the wrapper after your death.

Why does an offshore life wrapper make sense?

  • It reduces the amount of money spent on probate and international inheritance tax. Probate is the legal procedure by which a will is “proven” and acknowledged as a valid Will in a court of law so that the estate assets can be administered in that jurisdiction. The situs of an asset, as previously stated, refers to where the asset is located for inheritance/estate tax purposes. When evaluating which laws apply to the asset, this could be crucial. By investing in a wrapper, you can avoid the probate process and its costs, as well as foreign inheritance/estate taxes.
  • There are no executor’s fees. Although the wrapper is included in your South African estate for estate duty purposes, it is not subject to executor’s fees when naming a beneficiary.
  • It saves money on taxes. Individual income tax rates in the wrapper are 30 percent, and capital gains tax (CGT) is currently 12 percent, resulting in significant tax savings for those with high marginal tax rates.

What is an endowment wrapper?

An endowment is referred to as a wrapper in general. In its most basic form, an endowment is a registered life company’s investment product controlled by Section 54 of the Long-Term Insurance Act.

What is an offshore endowment?

An offshore endowment is a tax-advantaged investment instrument designed for investors who want to invest substantial sums of money offshore yet have high marginal tax rates. There are no constraints on the underlying asset allocation and a wide range of underlying investment possibilities are accessible.

ISA VCT a tax wrapper?

Pensions and Individual Savings Accounts are the two main tax-favored investments (ISAs). There are alternative ways to invest tax-efficiently as well, such as through Venture Capital Trusts (VCTs).

The treatment of income and the accessibility of the assets under each wrapper are crucial from an investing standpoint, and what would be appropriate for your individual financial circumstances should be considered.


  • Every tax year, you can pay in 100% of your salary, up to a maximum of £40,000, tax-free.
  • Once money has been invested in your pension, it can grow tax-free.
  • When you reach retirement age, you can take a 25% lump sum payment that is tax-free. Then you must consider a drawdown or annuity (for further information, see Annuity Rates Explained), however this money will be taxed as income.

There are no limits to the number of pension systems you can join, just to the amount you can contribute each tax year. With this in mind, you can distribute your money among a few different pension plans to obtain the most diverse investment portfolio and fund diversification.

The tax benefits of a pension are its most important feature. If a basic rate taxpayer invested £100 in their pension, they would only pay £80 in taxes. The government would make up the difference by essentially refunding the income tax that would have been collected otherwise. Investing £100 in a pension would cost higher rate and extra rate taxpayers only £60 and £55 respectively.

You may now set up pensions for your children, which are a terrific way to provide for them after you pass away. Any money in your own pension, as well as any money invested in your children’s pensions, is not included in the value of your estate for IHT reasons.

self-invested personal pension

A SIPP is essentially a self-directed pension. You have control over where your money is invested and can keep your funds in your own hands. SIPPS provide more investing flexibility than traditional personal pensions.

This investment power, as indicated on the Pension Advisory Service, allows you to invest in a variety of assets, including:


  • Every tax year, you’re allowed to put £20,000 into ISAs. You can put the entire £20,000 into one ISA or divide it among the four categories (cash ISA, stocks and shares ISA, LISA, IFISA).
  • Money placed in any type of ISA is allowed to grow tax-free.
  • ISAs are beneficial because of their versatility and accessibility. Some fixed ISAs require you to keep your money invested for a certain period of time, but there are lots of instant access options.
  • A Lifetime ISA is an exception to this rule. Money deposited into a LISA can only be accessed when a first-time buyer purchases a property or for retirement without having to pay a fee. More information about Lifetime ISAs can be found here.

Junior ISAs are available, with a tax-free allowance of £9,000 at the moment. Children can invest in cash or stocks and shares ISAs, which are subject to the same tax restrictions.

venture capital trusts (VCTs)

VCTs are London Stock Exchange-listed investment businesses. They were created to facilitate investments in small and early-stage UK enterprises that met certain criteria. To encourage assistance for small enterprises, the government provides highly large tax incentives for investing in VCTs, despite the fact that these investments are often riskier than others and are for the long term. If money is taken too quickly, the tax benefits would be lost.

  • Investors can earn a 30% tax break on payments up to £200,000 if they use the income tax credit. You must, however, have paid the same amount of tax as the rebate and retain the shares for at least 5 years.
  • Tax-free dividends — dividends from VCT shares are not subject to income tax.
  • No Capital Gains Tax — When you sell your VCT shares, you won’t have to pay any CGT.

VCTs are typically utilized by investors who have exhausted their pension and ISA allowances and are looking for further tax-advantaged investments.