A PPLI policy can be a highly effective solution for both privately held business owners and high net worth individuals/families seeking tax efficient cash accumulation.
PPLI is an elegant type of variable life insurance contract that leverages the tax advantages of traditional coverage and provides access to a wider array of investment options. If structured properly, funds may be allocated across a highly customized pool of investments. Surplus premiums (premiums paid in excess of death benefit costs) are added to the policy cash value, growing tax deferred. PPLI can serve as an excellent strategy for mitigating ongoing income taxes, acting as a tax efficient wrapper for assets that:
- Generate high levels of tax inefficient income, such as private credit or high-turnover hedge funds.
- Are expected to significantly increase in value within the foreseeable future, and will ultimately be prepared for disposition.
Typical PPLI Candidate:
- Net worth of $10 million or greater
- Access to significant liquidity
- Ability to fund $2-$5 million, cumulative within the first five years
- Appetite for alternative style investments
- Desire for sophisticated income tax & wealth transfer planning
Common Investments Inside PPLI Include:
- High Turnover Hedge Funds
- Private Credit
- Direct Lending
- Real Estate
- Private Equity
- Traditional Mutual Funds
Investment Customization Vehicles Include:
- Off-the-Shelf Platform Funds (predetermined fixed menu of VITs & IDFs already available)
- Insurance Dedicated Fund(s) - IDF
- Separately Managed Account(s) - SMA
- Bespoke investment portfolio
- Tax deferred growth & tax free distributions (if structured properly)
- Institutional Pricing (typically < 100 bps per annum)
- Trades investment tax drag for costs of insurance
- No Surrender Charges
- Favorable Policy Lending Terms
PPLI Discovery Process
- The financial advisor and client collaborate to determine the client’s investment objectives, risk tolerance, as well as income tax & estate planning needs.
- A risk/return analysis is conducted. The financial advisor works with the client to create a customized policy that meets their specific investment goals and tax planning needs. It includes review of cost to set-up and administer.
PPLI Policy in Action
Initial Set UpGrantors draft an irrevocable trust that will own a life insurance policy.
Contribution of FundsFunds are contributed to the trust, which are used by the trustee to purchase a PPLI policy.
InvestmentLiquid funds are allocated to various investment options within a separate account managed by an independent financial advisor.
Tax Favored Access to Policy ValueOver time, any investments acquired in the account grow tax-free. The policyholder can access funds tax-free by taking loans against the policy’s cash value. Upon policyholder’s death, the death benefit is paid out tax free to beneficiaries named in the policy.