Variable insurance policies are an often utilized structure through which family offices and other high net worth investors invest in hedge funds and other private investment funds.  One of the primary advantages of investing in hedge funds and other private investment funds through variable insurance policies is the deferral of income taxes.  However, policy holders must first satisfy two important tests – the “diversification rules” and the “investor control” rules – in order for the policies to qualify for favorable income tax treatment.  This article is the first in a two-part series of guest articles in the HFLR by James Schulwolf and Peter Bilfield, both Partners at Shipman & Goodwin LLP, and Lisa Zana, a Senior Associate at Shipman.  This article describes the mechanics of investing in an insurance dedicated fund through variable insurance policies and offers a roadmap for satisfying the two tests to ensure the variable insurance policies maintain their tax-advantaged status.  The second article in this series will describe in detail a recent restructuring transaction in which the authors participated and provide the key terms in the transaction documents applicable to the diversification and investor control rules.