The Need for Beneficiaries

An individual living outside Switzerland who has purchased life insurance from a Swiss insurance company must designate a third party, either a family member, spouse or descendent or (irrevocably) a Trust or other legal entity as the beneficiaries of the policy. The insurance policy is then be protected under Swiss law to ensure debt collection procedures by creditors of the policy owner will be unsuccessful. Additionally, the contents of such a policy is not part of any Swiss bankruptcy procedure. A foreign court order explicitly approving the seizure of this policy or including it in the estate during bankruptcy will have no effect in Switzerland.

Fraudulent Conveyance 

The only circumstance in which creditors may legally seize the policy or include it in the estate in bankruptcy is if either the purchase of the policy in question or designating beneficiaries is considered, under Swiss law, to be fraudulent. Such cases occur if the policy owner were to have designated his or her beneficiaries less than one year prior to creditors initiating the debt collection procedure that led to a bankruptcy decree by the policy owner.

 The only other instance where fraudulent conveyance applies is in the case of the designated beneficiary having been specified with clear intent to damage creditors or give preferential treatment to some creditors more than others. For this to be considered, the designation must have been made less than five years prior to the initiation of debt collection proceedings. The creditors in question in these circumstances need to prove both the policy owner's intent and that the beneficiary was aware of such intent to defraud the creditors. For obvious reasons, an intent cannot possibly be proved if the beneficiaries were designated when the policy owner was solvent and before any creditor asserted claims against him that may render him insolvent.

In cases where the policy owner designates his (or her) spouse or descendants as the beneficiaries of the policy, the policy is protected by law from any claim made by creditors regardless of the manner of designation (revocable or irrevocable). It follows then that the policy owner is able to revocably designate his spouse/descendants as the beneficiaries and at a later time, revoke this before the policy expires, provided there are no threats from creditors. After the insurance policy has expired, the holder must decide whether to collect the proceeds, extend the existing policy or carry the proceeds over to a new policy. However if a creditor makes claims at the time of expiration, or if the policy owner were to become insolvent, a new policy would be unprotected as opposed to an extended policy which would remain under legal protection.

 Under Duress

If an insurer receives a communication from the policy owner that requests the revocation of the designated beneficiary while a foreign court order exists to include the policy or assets in a foreign bankruptcy estate, the insurer can conclude that the instruction to revoke the beneficiary sent by the policy owner may have been forced by the foreign court and is not the true intent or wish of the policy owner. A Swiss insurance company is only permitted to act on orders of the policy owner if his actions are considered not to have been made under duress. Any evidence suggesting such an order may have been forced upon the owner, the insurance company is unable to follow the order which has been issued. In these circumstances, the beneficiary or beneficiaries should advise the insurance company of the situation.

Protection in Bankruptcy 

Protection is guaranteed in case of the policy owner being declared bankrupt. The ownership of the policy is automatically transferred to the beneficiaries and any instructions received from the original owner (which may have been forced by a foreign judge or count upon him) cannot be acted on. The new owners. i.e. the beneficiaries, are the only  ones in a position to send instructions to the insurance company.