Private Placement Life Insurance (PPLI) is a powerful wealth planning tool used by family offices and high-net worth individuals to invest in a tax efficient manner and transfer wealth to future generations more effectively. Unlike traditional “retail” insurance, PPLI is a unique type of insurance that takes advantage of insurance rules to avoid income taxation on internal income and taxation on the proceeds at the death of the insured. There is a focus on cash value accumulation and investment flexibility as well as transparent pricing, which is fully disclosed. In some cases, there are no surrender charges, depending on the insurance carrier.
While most U.S. states have a state premium tax anywhere from 200-250 basis points, in South Dakota the insurance premium tax is a percent (8 basis points) for the portion of the annual life premiums exceeding $100,000. Since most PPLI premiums are in the millions, placing PPLI policies in trust in South Dakota will result in compelling state tax savings.
What are the primary differences between PPLI and retail life insurance?
- Policy owner has broader flexibility with regard to investments and many hedge fund investment choices are available (note: policy owner cannot exercise direct or indirect control over the policy investments).
- Policy purchasers must meet ‘qualified purchaser’ and ‘accredited investor’ guidelines under SEC rules.
- Policy fees are more competitive than retail insurance products as in most cases there are low front-end loads on premium payments and the annual charges against policy cash values are a small fraction of the annual tax cost associated with similar investments in a taxable environment.
Who benefits from PPLI?
- Clients in high tax bracket and/or high tax states.
- Clients looking to allocate to tax inefficient assets.
- Clients with grantor trusts.
- Clients with charitable intent, mostly for U.S. clients.
- Clients who have long-term investment horizons and wealth transfer goals for subsequent generations.
For more information on Private Placement Life Insurance, call (305) 347-5129 or contact us online.