Life insurance in Liechtenstein: Asset protection with total default risks

“If you have faith, it’s all over.” (Stanislav Lec, Polish poet)


Asset protection is the separation of business and private risks or assets, including the integration of insurance protection. Risks to private assets stem primarily from the business sector (e.g. liability for break-through) or from financing, but also from separation/divorce or legal disputes.


To protect an “iron reserve” against seizure and execution, life insurance from Liechtenstein is only suitable for the private sector. If all goes well, creditors will hardly be able to access this money. There are, however, numerous pitfalls in the design process which can pose a massive threat to assets.


Total loss due to placement in Germany

Assets in Liechtenstein life insurance are protected by the insolvency privilege. Advertising with the insolvency protection in Germany is just as undesirable as emphasising the insurance secrecy, which puts the curiosity of the authorities in check.


If this insurance policy is brokered by an agent or a credit institution from Germany, the prevailing view is that insolvency protection is not applicable. This circumstance is known from correspondence between BaFin and FMA (Liechtenstein Financial Market Authority) – the client is usually not informed about this “total loss risk”. Even a joint trip of the agent (agent/broker) with the client to Liechtenstein does not change this legal result.

Total loss due to bank bankruptcy

The Swiss banker is piqued when asked about the low deposit protection of SFR 30,000 per customer. In Germany, there have already been one or two bank failures in which each customer was protected with only 20,000 euros.

In Liechtenstein life insurance, more precisely in the insurance shell, there is a cash account and a securities account. In this respect, the first choice would be a credit institution which is not legally competitive – after that, it is important to ensure that the bank belongs to a sufficient deposit guarantee scheme.


Total loss by asset managers

Cash account and custody account are usually managed by an asset manager. In Switzerland, but also in Germany, so-called retrocessions (kick-backs) are severely punished: the bank charges high fees, and passes on some of these “behind the scenes”, without the client’s knowledge, to the asset manager in addition. The lawyer can then assume that there has been fraud or infidelity. The client should have the creditworthiness of the asset manager professionally checked before commissioning him. The asset manager’s pecuniary loss insurance hardly covers criminal behaviour.

However, the asset manager can also issue securities himself (so-called “pre IPO’s”) and buy these economically worthless securities into the custody account for the client. Later, the lawyer then says “Mr. Client, no no, your money is not gone – just someone else has it”.

Not every insurer keeps shadow accounting in a timely manner, with which the asset manager can then be monitored promptly. Future claims will certainly motivate the providers of insurance coats to effectively avoid such discussions from the outset, especially if the personal liability of the executive board is affected.


Total loss through insurance employees

Part of the capital investment construct of a Liechtenstein insurance company is that the insurance company is the account and custody account holder. Only it can, for example if the customer cancels the insurance contract, have the bank assets liquidated in order to pay them back to the customer.

In the house of the insurer, the 4-eyes principle applies, so that regularly two signatures from the house of the insurer are necessary to transfer the money.

If, however, two criminal persons are found there, embezzlement may occur, as with other investment losses: An effective protection against this would be the rarely used pledge. Here, too, legal peculiarities must be taken into account so that such liens are effective. The sales department regularly submits ineffective pledge forms that it has created itself. In such cases, it is often only the professional lawyer who has to provide the necessary legal security.


Total loss of company assets and company pension scheme (bAV)

Creative brokers manage to secure over 12% commission for themselves. Take an operational GmbH reinsurance and transfer it to a Swiss bank. The bank then gives the double amount of credit on top (leverage business) – the whole is invested in a supposedly insolvency-proof insurance cover. Less well known is that insolvency protection only applies to private assets – and that there are international insolvency agreements with Switzerland “on the mutual equal treatment of creditors in bankruptcy”. Experience shows that it takes a few years before the money from Switzerland is available to the German insolvency administrator – but it is guaranteed to get there. Does banking secrecy have a loophole here?

In the operational field, the occupational pension assets of companies can only be effectively protected by foreign company law (e.g. foundation, cooperative, trust). The transaction costs (establishment and administration p.a.) of a Liechtenstein life insurance policy are around 0.5% – a trust is likely to be twice as expensive. While the insurance shell is available from a deposit of 50,000 euros, a trust is only possible from six-figure amounts due to its fixed costs.

So-called CTA or trust models under German law, a German association as a “pension trust” would be conceivable solutions, “as full of holes as Swiss cheese”.


occupational pension schemes outside the scope of the Company Pensions Act

However, if companies wish to introduce occupational pension schemes, they can avoid any liability of their own without resorting to the usual channels of implementation. For this purpose, the commitment must be given by a foundation that has sufficient contact with the employer. Suitable models are developed and offered by the Carta Mensch Foundation, for example.
The employer only makes contributions to the foundation, but does not make any commitments of his own. For medium-sized companies up to about 100 employees, foundations or sub-foundations are available here off the peg at a reasonable price – for larger ones, a case-by-case concept is required. Since this is a company pension outside the scope of the Company Pensions Act, there is much more freedom in the design of e.g. also the regulations on expiry. There is no need to touch the employer’s balance sheet – except for the contributions made by the foundation. This means that the risk of insolvency is no longer an issue. In addition, no contributions are payable to the Pension Protection Association.


by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm


by courtesy of (published on 15.11.2019 under the heading: How occupational pension assets can also be protected)

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and (published on 15.11.2019)


and (published on 16.11.2019 under the heading: How occupational pension assets can also be protected)


and (published in the Submission Scoreboard No. 227, November 2019)

and (published in Network-Karriere, issue 12/2019, page 30)

and (Published on on 08.01.2020)



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Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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