Private Placement Life Insurance, PPLI

Private placement life insurance (PPLI) is a potentially diverse and highly economical investment mechanism that is underused. It is beneficial to more than just rich households. A PPLI policy can be funded by an individual or family with a net worth of $1 million to $5 million.

No income or capital gains taxes are paid on investment development of assets kept in a private placement life insurance (PPLI) policy, as with all life insurance plans under the United States tax law (IRC 7702). As a result, assets in the life insurance wrapper can grow and be given to recipients tax-free. In general, estate taxes must be paid upon the insured’s death if PPLI is in the insured’s estate. But, estate taxes can be avoided if the PPLI policy is held through an irrevocable life insurance trust, or ILIT.

Foreign-based PPLI has a competitive advantage over domestic PPLI. It features lower minimum premium commitments (often $1 million), as well as cheaper start-up and carrying costs. Domestic PPLI, in contrast to overseas PPLI, needs a minimum premium commitment of $5 million or more, is only available in cash, has higher costs, and is subject to state-imposed investment limitations. Of addition, being a variable product, PPLI is subject to the market risks associated with its investments.

Domestic whole and universal life insurance plans are well recognized for providing tax-deferred growth of the policy’s cash or investment value. The cash value of a conventional policy (i.e., not variable and not privately placed) is, on the other hand, part of an insurance company’s general investment fund. The yearly growth rate of cash value in a whole life insurance policy is typically a few percent. A fixed index universal life (IUL) insurance policy often has higher growth but fewer guarantees.

In contrast, private placement life insurance (PPLI) is a privately negotiated life insurance contract between an insurance carrier and a policy owner. PPLI has various advantages over regular plans. Policy funds are maintained in separate accounts that, in theory, safeguard them from the carrier’s creditors. PPLI allows for a broader choice of investment options to be handled by a professional investment adviser chosen by the policy owner. Lastly, policy costs are clear, negotiable, and usually cheaper than standard insurance plans. Domestic insurance firms offering PPLI in the United States, on the other hand, often need a minimum insurance premium commitment of $10 million to $50 million.

Offshore PPLI plans are more advantageous than domestic PPLI insurance located in the United States. Offshore insurance businesses are not subject to the severe SEC and state insurance laws that limit the sorts of investments available to domestic insurance policies in the United States. Furthermore, offshore PPLI plans are not subject to the different state premium taxes. A policy issued by a foreign insurance carrier is subject to a 1% U.S. excise tax, but it is exempt from the federal deferred acquisition cost (DAC) tax. One of the primary advantages of offshore PPLI is that it is offshore, which means that the offshore life insurance carrier may be chosen such that it is not subject to the jurisdiction of U.S. courts. Offshore

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