PPLI is particularly suitable for the following types of investors:
- U.S. persons seeking tax efficiency and access to non-U.S. investment funds
- Persons looking for a tax-advantaged investment vehicle with secure asset protection
- Persons seeking to combine investment benefits with insurance component
- Persons temporarily or permanently relocating to the United States
- Expatriate U.S persons living abroad seeking compliant relief from complexities of U.S. tax laws and regulations
- Combined with a trust, PPLI policies can also achieve more complex tax and estate planning objectives
What is Private Placement Life Insurance?
"PPLI" is a variable universal life insurance product designed for high net worth individuals. It is offered by both domestic and foreign insurance companies and provides policy holders with sophisticated asset management choices, including a wide variety of hedge funds and fund-of-funds.
Why are investors interested in PPLI?
Generally, the core motivation for acquiring a PPLI product is to establish a tax-free investment environment, at the lowest possible cost, in which an investor may designate hedge fund or traditional money manager(s) to manage the assets paid into the insurance policy. Furthermore, the death benefit component of the policy may be used in wealth transfer and estate tax mitigation strategies.
What are the income tax advantages of life insurance?
The income tax benefits of life insurance include: (1) tax-free earnings (dividends, interest, and capital gain) on policy assets (2) the ability to withdraw and to borrow assets from the policy cash value free of income tax (with proper structuring); and (3) the receipt of policy proceeds by the policy beneficiaries at the death of the insured on an income tax-free basis
What are the main differences between PPLI and retail life insurance?
- The policy owner has broader flexibility with regard to the policy's underlying investments, and many hedge fund investment choices are available. However, the policy owner cannot exercise direct or indirect control over the investment policy of the assets.
- Policy purchasers must meet "qualified purchaser" and "accredited investor" guidelines under SEC rules.
- Fees are typically more competitive than retail insurance products. In most cases, there are low front-end loads on premium payments, and the annual charges against policy cash values are a small fraction of the annual tax cost associated with similar investments in a taxable environment.
What factors influence whether a PPLI policy should be acquired from an offshore versus a domestic life insurance company?
- Premium payments to non-U.S. life insurance companies generally are not subject to U.S. state premium taxes, which can range from 1-3% of premium. In addition, the U.S. "DAC" tax (approximately 1-1.5% with domestic carriers) is often lower offshore. Although many offshore carriers elect to be taxed as a U.S. corporation, a U.S. federal excise tax of 1% is imposed on policy premiums on U.S. lives that are paid to foreign life insurance companies not taxes as U.S. corporations
- Investment flexibility may be greater offshore due to the absence of SEC and state insurance and security law regulation; also, in many cases, the insurance-related fees are lower than the domestic policy equivalent
- With proper planning, a higher level of asset protection is available with offshore PPLI policy purchases