Private placement life insurance is a good option for high-income families and individuals who want to convert highly inefficient taxable assets into tax-efficient investments (PPLI). PPLI is a type of insurance that provides policyholders with access to alternative investments in a tax-advantaged structure. What is PPLI? Who offers private placement life insurance, companies, and prudential Private placement life insurance and its pros and cons will be discussed further below.
Private Placement Life Insurance
Families who dislike taxes and prefer tax-inefficient investments or investment strategies are excellent candidates for PPLI. Individuals, irrevocable trusts, and limited liability companies must be accredited investors or qualified purchasers to own PPLI.
Because the strategy includes life insurance and medical insurability, insurance costs can eat into the tax benefits, making the strategy less appealing. If medical issues make purchasing PPLI impractical, consider the Private Placement Variable Annuity (PPVI), PPLI’s close cousin.
What Is Private Placement Life Insurance?
Private placement life insurance is a type of life insurance with a high cash value in comparison to a low death benefit. To minimize fee drag, the life insurance component is kept as low as possible, allowing the cash value of the policy to ultimately drive the death benefit. The goal of PPLI is to quickly accumulate significant cash value within a life insurance policy so that income and gains from the policy’s underlying investments can be tax-free.
It is essentially a variable life insurance policy that allows you to allocate funds to alternative investments that are not available in more traditional variable universal life insurance policies.
Who Offers Private Placement Life Insurance
Although private placement life insurance originated in the United States, many American policyholders use offshore carriers. Cayman, Puerto Rico, Barbados, and Bermuda are the most common locations where PPLI is available. Because of the strict rules and regulations governing insurance products in the United States, non-US carriers are becoming more popular. Asia, Europe, and other parts of the world are not as constrained.
Furthermore, offshore carriers have lower overhead because they price their services as providers rather than traditional insurance carriers. Typically, offshore carriers do not engage in marketing or advertising. Furthermore, these carriers are subject to a slew of restrictions in terms of their sales force.
Zurich, Wells Fargo, John Hancock, Pacific Life, and Crown Global are some of the leading PPLI policy and insurance-dedicated fund providers. However, BlackRock is the most well-known company that offers private placement life insurance. Furthermore, this provider acquired Philadelphia Financial Life Assurance Company before merging with Lombard International to form the world’s largest asset management firm. BlackRock has revolutionized private placement life insurance.
Why Should You (Not) Consider PPLI?
One of the key requirements for complying with IRS PPLI guidelines is that the policyholder relinquishes investment control over the underlying assets.
On each carrier’s platform, there are numerous investment options available in the form of commingled funds from which a policyholder can choose. In addition, some insurance companies permit managed accounts. You can choose from a variety of strategies and investment objectives in these cases, but not individual holdings.
If the IRS determines that you, the investor, have excessive control, the PPLI will be treated as if it never existed, and all income tax benefits will be forfeited. A hands-on investor who is hesitant to hand over control of a portion of their investment portfolio may find this strategy difficult to accept.
Private Placement Life Insurance Companies
In both the domestic and international markets, there are a number of high-quality carriers. Some of the offshore carriers are subsidiaries of large, well-known US carriers, but there are also very small carriers to avoid. Few offshore private placement life insurance companies have their own credit ratings. Some describe their claims-paying ability in terms of their parents’ or principal reinsurer’s ratings. Others also have parent private placement life insurance companies that guarantee that they will pay claims. Foreign life insurance companies’ capitalization levels vary greatly. Also, due diligence on carriers is an important step in the policy acquisition process.
Professional wealth managers frequently recommend vendors. Among the most prominent providers of private placement life insurance services and insurance-dedicated funds are BlackRock, Wells Fargo Private Banking, John Hancock, Zurich, Crown Global, and Pacific Life (IDFs).
Private placement life insurance providers. There are several companies that provide private placement life insurance, and we are sure there are many more, but here is a short list:
- Lombard
- BlackRock
- Wells Fargo Private Banking
- Morgan Stanley & Co.
- John Hancock’s signature
- Zurich
- Crown International
- Preferred by Investors
- Pacific Life Insurance Company
- Please request a list of additional providers from your financial advisor or insurance agent.
Prudential Private Placement Life Insurance
When deciding whether to issue a private placement, a company must take several factors into account. Some key characteristics to look for when selecting a prudential private placement life insurance lender or investor are:
- They are more concerned with relationships than with transactions. It is critical that they demonstrate an interest in the businesses they finance, as well as work to understand the needs of the business and how it operates.
- Because private placement debt is typically long-term, it is critical for the private placement investor to be able to grow as a financial partner as well as have the knowledge and experience to assist a company in navigating through difficult times.
- They are quick to respond, have access to key decision-makers within their organization, and act quickly.
- Throughout market cycles and the calendar year, the private placement investor maintains a consistent appetite for private placement debt.
- They follow through on their promises. Finally, it is critical to locate a private placement investor who can provide financing tailored to your company’s objectives. Prudential Private Capital can assist you if you want to issue a private placement.
For more information, please visit prudentialprivatecapital.com.
Private Placement Life Insurance Pros and Cons
Pros
Many of the features and tax advantages that we discussed in this guide are the essential benefits, and here is a summary:
- As a private placement policy, institutional pricing is used to reduce insurance costs.
- Insurance policy design has complete freedom.
- The ability to choose between onshore and offshore providers for PPLI.
- Tax advantages include tax-deferred growth, tax-free withdrawals and loans, and tax-free death benefits to heirs.
- Asset Protection: Subject to certain conditions, assets are protected from bankruptcy, legal judgment, and duress.
- Hedge Against Poor Investment Performance: If the investments perform poorly, the death benefit may still be used to provide some benefits to beneficiaries.
Cons
- Complexity: A PPLI policy is sophisticated and difficult to understand.
- Insurance Costs: Regardless of whether insurance is required, the policyholder must pay for the insurance death benefit.
- Because of the high premiums and other costs, the level of wealth at which it makes sense is rather high.
- The setup costs, as well as an ongoing management fee, mortality and expense ratio, and other costs, add up to a lot of money.
- Policies that lapse or convert to MECs (Modified Endowment Contracts) will incur tax consequences.
- While we are not legal experts, we believe that some of the structural and regulatory parameters governing the PPLI field could benefit from more real-world testing.
Conclusion
Finally, it is critical to find a private placement insurance investor who can provide financing tailored to your company’s goals. Pricoa Private Capital can assist you with a private placement.
Frequently Asked Questions
What is meant by private placement?
A “private placement,” as the name implies, is a private alternative to issuing or selling publicly-traded securities; as a means of raising capital. A private placement involves the offering and sale of debt or equity securities between a company; or issuer, and a small group of investors.
What is PPLI policy
PPLI is a type of life insurance that is designed to have a high cash value; in comparison to a low death benefit. It is essentially a variable life insurance policy that allows you to allocate funds to alternative investments; which is not available in more traditional variable universal life policies.
Can you put real estate in a PPLI?
PPLI is a type of insurance policy that is similar to universal life insurance. It enables the policyholder to invest in securities or other alternative investments, such as real estate while deferring taxes.
Is private placement good?
Private placements can provide superior execution relative to the public market for small issuance sizes; as well as greater structural flexibility for public companies. Savings: A company can often issue a private placement for a much lower all-in cost than a public offering.
