Why and When Ultra-High-Net-Worth Individuals Consider Private Placement Life Insurance
Private Placement Life Insurance (PPLI) is an advanced planning tool for ultra-high-net-worth individuals that combines tax efficiency, privacy, and asset protection with estate planning advantages.
Ultra-high-net-worth individuals (UHNWIs) are typically defined as those with a net worth exceeding $30 million and often face complex financial planning needs. One sophisticated tool that has gained traction is Private Placement Life Insurance (PPLI). This specialized form of life insurance offers tax efficiency, asset protection, and estate planning value. But why and when is the right time to incorporate PPLI into one’s wealth strategy?
Why UHNWIs Choose PPLI
Tax Efficiency:
Grow investment assets tax-deferred. Gains on investments inside a PPLI policy are not taxed annually. If structured properly, the policy's death benefit can be passed to heirs income-tax-free.
Customizable Investment Options:
PPLI policies allow for institutional-grade investments including hedge funds, private equity, and separately managed accounts.
Confidentiality and Privacy:
Since it is structured as a private placement, these policies are typically not registered with the SEC and thus are not subject to the same disclosure requirements as public offerings. This level of discretion can be critical for individuals who value financial privacy.
Since it is structured as a private placement, these policies are typically not registered with the SEC and thus are not subject to the same disclosure requirements as public offerings. This level of discretion can be critical for individuals who value financial privacy.
Asset Protection:
In many jurisdictions, life insurance cash value and death benefits are protected from creditors. UHNWIs with exposure to litigation or business risk often leverage PPLI to help shield assets.
In many jurisdictions, life insurance cash value and death benefits are protected from creditors. UHNWIs with exposure to litigation or business risk often leverage PPLI to help shield assets.
Estate Planning Efficiency:
PPLI can be used to remove assets from a taxable estate, especially when held inside an irrevocable life insurance trust (ILIT).
PPLI can be used to remove assets from a taxable estate, especially when held inside an irrevocable life insurance trust (ILIT).
When to Consider PPLI:
After Achieving a Certain Net Worth. Most providers require a minimum premium investment of $5 million.
When Facing High Tax Exposure:
When realizing significant capital gains, dividend income, or other taxable investment income annually, the tax deferral benefits of PPLI can create meaningful value.
When realizing significant capital gains, dividend income, or other taxable investment income annually, the tax deferral benefits of PPLI can create meaningful value.
During Estate Planning Milestones:
PPLI is often implemented during major estate planning reviews, inside wealth transfer strategies, and pairs well with gifting and trust strategies.
PPLI is often implemented during major estate planning reviews, inside wealth transfer strategies, and pairs well with gifting and trust strategies.
In Anticipation of Liquidity Events:
Before selling a business or realizing a large capital gain, individuals may use PPLI to reposition assets into a tax-advantaged structure.
Before selling a business or realizing a large capital gain, individuals may use PPLI to reposition assets into a tax-advantaged structure.
Grateful,
Jac M. Arbour, CFP®, ChFC®
Founder & CEO
To speak directly with J.M. Arbour’s CEO about becoming a private client, please email jac@jmarbour.com. Jac will return your email and schedule a call with you at your convenience. Involved in every call with qualified purchasers, is J.M Arbour’s CIO, Evan Campbell, CFA.