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Typically, a wealth manager will work with a specialized insurance broker to introduce PPLI to a client. Together, they review the client’s investment goals and objectives to determine if PPLI is an appropriate investment solution.
Upon successful medical underwriting, an insurance specialist can help create a customized PPLI policy for the client. (In contrast, PPVA does not require medical underwriting.) Investors and their advisors will seek proposals from multiple insurance companies for the best combination of features and pricing.
PPLI/PPVA and the Highly Affluent Investor
PPLI/PPVA can help meet the needs and goals of many affluent investors. These vehicles may be suitable for investors who:
- Wish to leave a legacy to their children or other family members
- Want a structure that helps heirs avoid selling assets to meet estate tax liabilities
- Would like to participate in tax-inefficient private funds without incurring current tax liability
- Intend to leave a legacy to a charitable organization
- Desire to provide heirs with a legacy, but retain the option of accessing assets while living
- Seek institutional pricing and lower costs compared to retail insurance and annuity products
Building a PPLI/PPVA Investment Portfolio
The wealth manager will assist in identifying the most suitable investment options for the client, selecting from hundreds of Insurance Dedicated Funds (IDFs) and Variable Insurance Trusts (VITs). IDFs and VITs are available only within variable insurance and annuity products, and are required to preserve the tax-deferred nature of the investment returns.
The IDF universe includes over 200 private funds for alternative strategies. The VIT universe includes over 400 registered funds investing primarily in traditional assets. The wealth manager will recommend funds within the PPLI/PPVA on a standalone basis or to complement the client’s overall portfolio.
The Advisor’s Guide to Private Placement Life Insurance & Variable Annuities:
Learn how to maximize wealth and enhance after-tax returns for affluent individuals and families
The Power of Private Placement Life Insurance
PPLI and PPVA also provide investors with many potential benefits:
PPLI and PPVA enable investors to compound wealth relieved of current taxation.
PPLI policyholders can access policy assets and generally make tax-deferred withdrawals and loans during the insured’s lifetime. (In contrast, PPVA earnings are taxable upon withdrawal.)
Tax-deferred policy exchanges
Investors can use a “Section 1035” exchange to transfer other insurance or annuity products into their PPLI or PPVA.
PPLI can be structured to allow for the tax-free transfer of policy proceeds to beneficiaries.
Tax-deferred alternative investments:
PPLI/PPVA owners can participate in alternative investments that generate significant income or short-term gains on a tax-deferred basis.
Institutional pricing for PPLI/PPVA means lower costs compared to retail life and annuity products.
Simplified tax reporting
PPLI policyholders aren’t burdened with the typical reporting requirements associated with private funds. No K-1s.
PPVA and Tax-free charitable transfers
PPVA can potentially provide for the transfer of assets to your family foundation or charity of your choice without estate taxes.