Insurance Dedicated Funds:
How to Beat Performance Drag

Fiduciary advisors to decamillionaires ($10 million+) and ultra-high-net-worth individuals or households ($30 million+) should have a macro view of clients’ balance sheets and use a multidisciplinary approach to address all the goals of each client simultaneously. Fiduciaries should not view clients’ specific goals in isolation, as if the goals were in silos. Advisors should consider investment income and capital gains, income taxation, asset security and preservation of purchasing power, philanthropy, and intergenerational wealth transfers in unison to achieve optimal client outcomes.[1]

This article explores the utility and potential use of an insurance dedicated fund (IDF) as an essential yet underutilized investment vehicle to improve portfolios’ overall tax-efficiency. For decades, high-net-worth and ultrahigh-net-worth taxpayers and their advisors have utilized insurance wrappers for legitimate insurance, wealth creation, and tax- and estate-planning purposes. Over the past three-plus decades, IDFs have withstood the tests of time and Internal Revenue Service (IRS) scrutiny.

As a wealth accumulation vehicle, an IDF allows access to sophisticated investment strategies and provides tax sheltering of investment income and capital gains. As an income-tax planning tool, an IDF permits tax-free buildup of assets. As an estate-planning tool, IDFs offer multiple advantages to mitigate estate-tax liability and facilitate orderly disposition of assets at death (income-tax-free death benefits). IDFs are versatile in that they also can be engineered to supplement clients’ estates during their lifetimes.

As far as asset security, IDFs offer financial privacy, customization, and significant protection against future creditors. Assets held in a private placement policy are held in a separate account and are protected from the assets of all other policyholders and the general account of the insurance company. IDFs in particular can be powerful devices to augment and implement philanthropic objectives.

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[1]Robert W. Chesner, Jr., Leslie C. Giordani, and Michael H. Ripp, Jr, “Private Placement Life Insurance and Annuities: Applications for U.S. and Non-U.S. Taxpayers,” Giordani Baker Grossman & Ripp LLP, 2009–Present, https://gbgrlaw.com/resources/PPLI/PrivatePlacementLifeInsuranceIncomeAndEstateTaxPlanningForWealthyFamiliesGBGR.pdf

Richard (Rick) P. Roche, CAIA

Rick Roche has been a Managing Director at Little Harbor Advisors, LLC since April 2013.

Rick Roche has 38 years of experience in the investment management and distribution industries. Rick is a Chartered Alternative Investment Analyst (CAIA), Member of the Society of Quantitative Analysts (SQA), and Boston QWAFAFEW (Quantitative Work Alliance For Applied Finance, Education, and Wisdom).

Rick Roche holds FINRA Series 7, Series 63, Series 3 (Commodities), and Series 65 (Investment Adviser Representative) licenses.