Irrevocable Insurance is in scope

Irrevocable life insurance is a cash value policy

1. Some insurers are propounding irrevocable insurance is out of scope because the policyholder cannot access the assets in any way except upon a mortality benefit. The policyholder cannot monetise the policy by means of surrenders, withdawals, pledges o assignments. The insurer thus opines the policy does not have a cash value an dis therefore not in scope of the CRS as the CRS only includes insurance policies that have a cash value.

The OECD will definitely amend the CRS to incude irrevovable Life Insurance. The OECD regards these policies equivaent to irrevocable trusts. This means the insurer will be obliged to report on the policyholder and payments to beneficiaries.

If the policyholder subsequently receives a penalty for undeclared assets, the policyholder cannot utilise the policy's assets to pay for these fines. Neither can the policyholder repatriate their assets back home to benefit from an amnesty lower taxes.

The policyholder will then likely sue any advisor who recommended the utilization of irrevocable life insurance as a means of maintaining confidentiality.
As predicted, the OECD closed the irrevocable insurance loophole in its June 2018 update to the CRS FAQ. If no-one can access the policy assets, the reportable person is the policy owner.

Q. Account Holders with respect to Cash Value Insurance Contracts

With respect to a Cash Value Insurance Contract, are persons that have the right to access the Cash Value and the right to change the beneficiaries of the contract still to be treated as Account Holders for CRS purposes if they have renounced such rights?

Such persons are to be considered Account Holders with respect to the Cash Value Insurance Contract in all instances, unless they have finally, fully and irrevocably renounced both the right to access the Cash Value and the right to change the beneficiaries of the Cash Value Insurance Contract.

In cases where, taking into account the above paragraph, no person can access the Cash Value or change the beneficiaries, the Account Holder is any person named as the owner of the contract.
2. Irrevocable life insurance is likely already in scope as the commentary states, notwithstanding the definition of cash value policies, "other benefits" from investment-linked policies are regarded as cash value policies. Although the commentary says this is for indemnity insurance, the examples they give such as personal injury and accident are non indemnity insurance. Life insurance is non-indemnity insurance. Therfore irrevocable life insurance wrappers are regarded as investment-linked insurance, in scope as other benefits from an investment-linked policy. This is explained in my opinion brief.
3. Economist article describing irrevocable insurance as a tax ruse.
4. In any event, notice the reporting obligations of Finnacial Institution as perthe OECD Implementation Handbook...

Information with respect to Other Accounts The total gross amount paid or credited to the Account Holder with respect to the account with respect to which the Reporting Financial Institution is the obligor or debtor. Such gross amount includes, for example:
  • The aggregate amount of: any redemption payments made (in whole or part) to the Account Holder
  • Any payments made to the Account Holder under a Cash Value Insurance Contract or an Annuity Contract even if such payments are not considered Cash Value