Insurance companies of the offshore type belong, together with offshore bank and trust companies among the most up-to-date tools in the field of tax planning and tax optimization. Like offshore banks insurance companies formed in offshore jurisdictions also enjoy the liberal environment of the offshore system and legislation.

There exist a number of types of offshore insurance licenses, beginning with the full international license, through a number of limited licenses to a license for additional insurance or underwriter or insurance broker licenses. Every jurisdiction has its own laws and classes of individual licenses which offer some of the below listed forms of licenses.

General Unrestricted Offshore License
This is a full international offshore insurance license, which usually does not have any restriction of activities, which means that on the basis of this license it is possible to insure, secure insurance or reinsure without limitation, including providing life policies or policies for other insurance companies from offshore or onshore jurisdictions.

Restricted Offshore License
Basically this concerns a full international insurance license which, however, has specific restrictions, such as an upper limit for the maximum amount of insurance policies, not providing life policies, foreign exchange restrictions, etc.

Restricted In-house License
The Restricted In-house License is a license which enables its holders to provide insurance services exclusively to a group of natural persons or legal entities who are the subject matter of the license or to the proprietor of the insurance company. This type of insurance company is intensively used by international holdings, banks, insurance companies and tax optimisation funds. The most frequented seat of these insurance companies are the Bermuda Islands, where at present about 3,000 internal insurance companies are registered, which administer insurance policies amounting to several billions of USD.

Re-Insurance License
This is a company, which itself cannot insure but which can only accept an insurance policy and subsequently secure it at another commercial onshore or offshore insurance company, often at a wholesale price. The home country of the re-insurance companies is the Caribbean island Nevis, where you can get a re-insurance company at a price about USD 2,000. A re-insurance company is an extremely excellent tool for tax planning intended de facto for any business, consulting or investment company.

Another chapter could be formed by licensed underwriters, brokers or trustees who can get licenses for international offshore activities in a number of offshore jurisdictions for international offshore activities at relatively advantageous conditions.

A major part of the insurance companies of the Offshore type, like ordinary business offshore companies, are not subject to taxation of their profits, but they often pay a certain type of lump-sum tax only or appropriate license fees. These fees are an important aspect while deciding about the extension of a license or its cancellation on the part of authorities.

• Low interventions on the part of authorities and institutions
• Lower capital requirements than in the case of other jurisdictions
• Tax aspects, they are often exempted from all forms of direct taxes
• Tax on profits are replaced with lump-sum taxes
• Low establishment fees
• Low license fees
• Liberal requirements connected with the operation of the insurance company
• Offshore insurance companies are often not subject to foreign exchange restrictions
• Licenses are easily available in a number of offshore jurisdictions
• In a number of countries no obligation of capital adequacy maintenance
• Possibility of concluding all types of insurance policies, including life policies

• For proper insurance, security, reinsurance or other similar activities or tax planning purposes
• Using an offshore insurance company for insurance activities

Many offshore insurance companies provide their clients with insurance services which can include various types of insurance coverage of a high risk - for example against events of negligence and misuse of official authority, corporate liability, against a possible strike as well as insurance of other risks which would be very expensive if agreed upon with ordinary onshore insurance companies.

The ability to make profits by providing these services depends to a significant extent on competition on the market and on the price of the insurance policy when purchased from standard providers in an onshore jurisdiction.

Indeed, insurance business activities have become a highly profitable matter for many private international offshore insurance companies, and it is no exception that an offshore branch office of an insurance company is more profitable than its parent onshore company.

Since in many cases the onshore insurers charged an unacceptable premium or refused to conclude an insurance policy at all, the parties, which were exposed to a high risk, did not have any other possibility but contacting offshore institutions which were glad to meet their requirements, often even with a discount.

Some of them only contacted the renowned foreign insurance companies, which were willing to take over the coverage of the risks at more acceptable premium than onshore insurance companies.

Other, mostly professional groups, holdings or individuals with common risks tended to establish co-operation insurance pools, operating either in offshore locations or in such states as Vermont (USA) or Colorado (also USA), which had more tolerating insurance regulations, and which in turn provided insurance to all members of the interest group.

• Risks connected with foreign activities
• Export, import and all foreign activities
• Insurance of persons in foreign countries (for example on business trips)
• Insurance against loss from business risks
• Risks connected with loans, guarantees, purchase of securities
• Risks connected with professional liability

Variable insurance products were developed by insurance companies primarily to meet competition from mutual fund type investments. If nothing else, the insurance industry is very creative and extraordinarily competitive. Essentially, variable life insurance is a whole life insurance policy, which allows the policy owner to direct the investment of the cash values within a selection of pre-set investment vehicles. These are usually mutual funds operated by the insurance company.

Most variable life policies allow policy owners to switch their investments in the underlying funds several times a year. Generally, there is no charge for the transfer of funds between the underlying investments, and the transfers are tax-free. The income earned by these investments underlying the policies' cash values may be accumulated tax-free or on a tax-deferred basis. The tax treatment depends on whether or not the gains are distributed during the policy owner's life or are funded at death.

Many professional planners and business advisors recognize that variable life insurance and, in particular, variable universal life insurance are important in solving business problems. The attractive features of these policies include their flexibility, their growth of cash values and the resulting death benefits. When used as a non-qualified deferred compensation plan, for example, a variable policy can potentially provide higher tax deferred cash value accumulations than a traditional whole life policy or even a universal life policy.

Variable policies also have variable tax consequences. With a variable insurance product, capital appreciation loses its character as capital gain. Where there are distributions because of a withdrawal or a surrender of the policy, the amount received becomes taxable as ordinary income. While the maximum or marginal tax rate is 39.6%, it is well known that the effective rate can be much higher due to certain computational complexities within the operations of the Internal Revenue Code. However, if the policy is not drawn down, the increase in value will clearly increase the available death benefit, which can be structured to be received by the beneficiaries free of any income or estate tax.