Which institution (type) is safer for your assets during a crisis?
Most people just don’t understand the difference between deposits with a bank and deposits with a life insurance company. Many believe that all financial institutions are generally structured in the same way and face the same business risks, however, this is not the case.
The two key risks for banks are:
- Lending risk (loans not repaid/ defaults)
- Funding risk (proportion between customer deposits and external funding)
Meaning that with banks the assets and liabilities are not matched
Life companies accept premiums…and with foreign life companies it is possible to have ZERO of that premium going to the cost of “pure insurance coverage” meaning policyholder assets are invested, ring fenced and protected with a separate account and all premiums, 100% goes directly into the investments that the client selected:
- Assets held in a custody are legally segregated from the custodian and cannot be used to cover liabilities of the custodian AND in any event
- There is no leverage, derivatives, no loans, no liabilities for non-life coverage policies.
Yes, that’s correct, a life policy without life insurance coverage will stand the test of ultimate stress.
Solvency requirements for a Life Company vs Banks:
A key difference between an insurance company and a bank from a regulatory standpoint is that a bank is not required to hold the full amount of its deposits at all times.(but they can use these funds to lend out to other customers). In other words the bank’s deposit liability to repay its depositors their money on demand is not matched 100% with assets…..in fact that is the current banking problem…nobody knows the banks true liability.
The fact is, that there has never been a “Run” on Life Insurance companies! There have been many “runs on banks”.
An Insurance company is required to hold all the assets underlying its policies at all times plus an additional amount for solvency margin. Example one insurance company we recommend has 5 times more capital than all the assets being held for their policyholders…..therefore, there is no counterparty risk!
In addition, many Governments have Investor Protection for Life Insurance Policies assets to 100% while banks have some limited capital sum or none! Example. Swiss Banks provide no investor protection for assets other than the banks own time deposit accounts.
Take action! Contact us to learn more about private placement life insurance (PPLI) or variable unit-linked (VUL) life insurance.
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