What is Private Placement Life Insurance (PPLI) and Who Is It For?
An Overview of PPLI
Families and high income individuals looking to convert highly inefficient taxable assets into favorable tax-efficient investments should consider Private Placement Life Insurance (PPLI). PPLI is an insurance product designed to provide the policy owner access to alternative investments in a tax-advantaged structure.
These advanced investment vehicles are often used by high earning US taxpayers looking to:
1) Accumulate earnings income tax free over a period of years (compound effect of this can be dramatic)
2) Still be able to appoint the investment managers of their choosing and select from sophisticated asset management offerings
So how does it work?
A Tax-Favored Insurance Structure
Affluent investors looking to mitigate the tax bite from a variety of alternative investments have long used Life Insurance for this purpose. As long as a policy remains in force, investments grow and compound income-tax-free. Although withdrawals or surrenders can generate ordinary income if structured improperly, there are two ways clients can tap a policy’s cash value tax-free:
1) Take withdrawals up to the amount of your investment in the contract
2) Take low-cost loans from the policy.
If you hold a policy for life and the investments perform well, you will accumulate significant cash value without paying tax along the way. This cash value can provide the policy holder with a variety of benefits, including tax-free withdrawals, enhanced death benefits, and funding for children’s education. In addition, when one holds the policy for life, the death benefit transfers to heirs income-tax-free. And by placing a policy in a properly structured irrevocable life insurance trust (ILIT), it’s possible to avoid estate taxes as well.
8 Benefits of a Using PPLI as a Flexible Investment Tool
Private placement life insurance avails policyholders of the following 8 benefits:
1) A tax-advantaged money management platform — PPLI combines the powerful tax benefits of life insurance with the flexibility to invest in hedge funds and other sophisticated asset management offerings.
2) Lower costs — Typically, PPLI offers lower fees, commissions, and other costs than retail insurance products.
3) No surrender charges— Policies can be surrendered at any time without incurring surrender charges often found in retail life insurance policies.
4) Simplified tax reporting — PPLI eliminates many of the annual reporting burdens associated with hedge funds, including K-1s.
5) Avoidance of “phantom income” — Because earnings accumulate in a tax-free environment, investors avoid paying taxes on income that’s not distributed to them.
6) Estate planning advantages — Clients have opportunities to enhance the benefits of wealth transfer and charitable planning strategies.
7) Tax-free policy exchanges — Investors can transfer existing life insurance policies into a PPLI using a tax-free IRC Section 1035 exchange.
8) Enhanced creditor protection — If structured properly, life insurance policy values cannot be claimed by creditors.
How to Qualify for PPLI
PPLI offerings are unregistered securities, so they’re available only to investors who meet the SEC’s “accredited investor” and “qualified purchaser” standards. Although the definition for accredited investor recently changed, accredited investors are those with:
1) A net worth of at least $1 million (excluding their primary residence)
2) Income of at least $200,000 ($300,000 for married couples) in each of the preceding two years. Generally, qualified purchasers are individuals (and certain trusts) with at least $5 million in net investments and entities with at least $25 million in net investments.
If you’re interested in exploring more how you and/or your family could benefit from PPLI, get in touch, and we’ll connect you with our partners that would be happy to help you get started.
The rare combination of equity markets near all-time highs & elevated volatility has created an unusually favorable environment for certain…
Commercial real estate’s stable nature has always been one of its main attractions and, now more than ever, is drawing in investors.
Our biotech industry has been working at unprecedented speeds to bring a COVID-19 vaccine to market. Most industries, including life sciences,
The secondary market refers to the buying and selling of pre-existing investments. In our first webinar of 2021, Excelsior Capital hosted secondary market…
A real estate private equity firm that owns and operates high quality multi-tenant office assets in emerging secondary markets.
Interested in learning more about Excelsior's investment opportunities?
Under no circumstances should any information presented on this website be construed as an offer to sell, or solicitation of an offer to purchase any securities or other investments. This website does not contain the information that an investor should consider or evaluate to make a potential investment. Other materials related to investments in entities managed by Excelsior Capital are not available to the general public.