Private Placement Life Insurance
(PPLI) is an advanced life insurance product that combines death benefit protection with access to a diverse range of registered and non-registered investments, exclusively available within the structure of the life insurance policy. The unique features of PPLI have garnered increased interest, especially during times of heightened tax uncertainty and market volatility.
However, it is essential to note that planning with PPLI entails meeting substantial financial thresholds, investment profiles, and liquidity requirements. The suitability of PPLI planning for individuals and families, as well as the proper implementation and maintenance of the PPLI policy, are critical considerations. Notably, the use of PPLI planning for high net worth families has recently undergone scrutiny.
PPLI is a form of permanent variable universal life (VUL) insurance that offers both death benefit protection and a cash value component, allowing for the accumulation of investment growth within the policy. Excess premiums beyond the cost of death benefit coverage contribute to and grow the policy’s cash value. PPLI policies enhance this investment feature by allowing policy owners to allocate the cash value among various investment options managed by third-party advisers.
What sets PPLI policies apart from conventional VUL policies available to the general public is the broader range of investment options. While conventional VUL policies offer limited investment choices, PPLI allows policy owners to select from a wider array of investment options, including actively managed accounts, hedge funds (including “funds of funds”), and alternative assets such as credit products, private equity, real estate funds, commodities, currencies, and non-correlated investments. Furthermore, conventional life insurance policies often have coverage limitations that may not adequately protect the death benefit needs of high net worth families. PPLI policies can be tailored to provide the desired amount of death benefit coverage while offering these investment opportunities.
PPLI insurance is typically most suitable for high net worth individuals who seek substantial death benefit coverage alongside the flexibility in investments provided by the policy. It may not be suitable for families solely focused on traditional or guaranteed death benefit protection since the availability of future death benefits relies on the performance of the PPLI policy’s investments. Typically, purchasers of PPLI insurance meet the following profile:
– Net worth of $20 million or more, with significant liquid assets ($10 million or more) and sufficient annual income to cover living expenses.
– Capacity to fund annual premiums of at least $1 million (typically, $3 million to $5 million) for several years (amounting to a total investment of over $5 million), including costs for implementing and administering the PPLI policy structure.
– Desire for substantial investment in alternative asset classes, with an investment horizon generally spanning 10-15 years.
– Previous experience with the implementation and optimization of other estate planning strategies.
Careful consideration of these factors and working with experienced professionals can help individuals and families make informed decisions about incorporating PPLI into their comprehensive financial planning strategies.