Life insurance and generational skipping: mechanism and advantages

Life insurance and skipping a generation

October 1, 2025

"Skipping a generation means passing on an inheritance to the second generation. What is the point of skipping a generation under a life insurance policy and how does it work?"

Skipping a generation within a Luxembourg life insurance contract

His wish

To bequeath part of this cash directly to his 9-year-old grandson
That his grandson may not dispose of these inherited assets until he is 25 years old

Solution

Takes out a life insurance policy drafted to include a specific beneficiary clause with one certain condition, namely:

A beneficiary clause with the obligation to reinvest the death benefits in a life insurance policy and a temporary inalienability clause under which surrenders are blocked until the subscriber's 25th birthday).

On the death of the insured

Profits from the policy are reinvested in a new insurance policy for which the policyholder/insured is the grandson. Beneficiaries must be the legal heirs.

On the grandson’s 25th birthday

Avantages	Key points
Direct transfer to the grandchildren, avoiding the inheritance being taxed twice (in cases where the intervening generation is not short of cash). Enables the balancing out of intergenerational transfers. During the lifetime of the grandparents, they retain control of the assets -> with the right to make partial surrenders of the policy.	It is not possible for a minor to take out a life insurance policy in every European country. It is possible in France but not in Italy. Please consult a trusted advisor in order to adapt the beneficiary clause in line with what is possible under local law. The rights of the person entitled to the reserved portion of the estate must be respected, and this may vary depending on the policyholder's country of residence

Avantages

Key points

Direct transfer to the grandchildren, avoiding the inheritance being taxed twice (in cases where the intervening generation is not short of cash).
Enables the balancing out of intergenerational transfers.
During the lifetime of the grandparents, they retain control of the assets -> with the right to make partial surrenders of the policy.

It is not possible for a minor to take out a life insurance policy in every European country. It is possible in France but not in Italy. Please consult a trusted advisor in order to adapt the beneficiary clause in line with what is possible under local law.
The rights of the person entitled to the reserved portion of the estate must be respected, and this may vary depending on the policyholder's country of residence