What is Private Placement Life Insurance (PPLI)?

PPLI is a variable life insurance solution offering highly affluent investors access to specialized investment strategies, such as private alternative funds, with potentially tax-deferred compound growth for the life of the policy.

 

What is Private Placement Variable Annuity (PPVA)?

Similar to PPLI, PPVA can provide tax-deferred compound growth for the life of an annuity. Unlike PPLI, PPVA earnings are eventually taxable when withdrawn or paid to a beneficiary, unless the beneficiary is tax-exempt, such as a charity or family foundation. PPVA is designed for investors seeking tax-deferred compound growth or tax-deferred returns from strategies generating significant taxable income.

Simplifying Access

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.

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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
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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.

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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

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The Power of Private Placement Life Insurance

PPLI and PPVA also provide investors with many potential benefits:

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Tax-advantaged compounding

PPLI and PPVA enable investors to compound wealth relieved of current taxation.

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Tax-deferred withdrawals

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.)

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Tax-deferred policy exchanges

Investors can use a “Section 1035” exchange to transfer other insurance or annuity products into their PPLI or PPVA.

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Estate planning

PPLI can be structured to allow for the tax-free transfer of policy proceeds to beneficiaries.

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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.

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Reduce cost

Institutional pricing for PPLI/PPVA means lower costs compared to retail life and annuity products.

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Simplified tax reporting

PPLI policyholders aren’t burdened with the typical reporting requirements associated with private funds. No K-1s.

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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.

Resources and Insights

ADVISORS’ GUIDE

Harness the Power of Private Placement Life Insurance & Variable Annuities

Maximize wealth and enhance after-tax returns for affluent individuals and families

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How to Grow Wealth Tax-Deferred with Private Placement Life Insurance

Do you serve highly affluent investors in your financial advisory practice? Do you seek such clients? Affluent investors have unique challenges compar...

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