Private placement life insurance and annuities combines the strength of premium investment products, like hedge funds, with the tax benefits of life insurance. 


As a high net-worth investor, you know how taxes can significantly reduce investment returns.  With a properly structured private placement life insurance policy, you are able to capture returns without the high tax implications typically associated with hedge fund investments.  That means more growth and more wealth for your lifetime or to preserve for your heirs or preferred charities.


Private placement life insurance (PPLI) and private placement variable annuities (PPVAs) have become increasingly popular as high net worth investors seek greater tax efficiency with investment vehicles. Typically, hedge funds and alternative asset class investments are taxed as ordinary income or short-term capital gains, at federal rates as high as 43.3%. Add in state taxes and the combined rate approaches 50%. By holding these assets within an insurance wrapper, investors can defer and potentially eliminate the tax burden.


  • PPLI typically offers lower costs and commissions in comparison to retail insurance products

  • Simplified tax reporting – PPLI eliminates K-1s and many other annual reporting burdens associated with   hedge funds

  • No surrender charges – These policies can be surrendered at any time without incurring surrender charges that are typically associated with retail life insurance policies

  • Avoidance of phantom income – Investors will avoid paying taxes on income that’s not distributed to them because they accumulate in a tax-free environment

  • Enhanced creditor protection


Private placement life insurance and private placement variable annuities both allow investments to grow tax-free within the insurance wrapper until they are distributed or withdrawn from the policy. Unlike PPVAs, PPLI offers investors the ability to access funds tax free in two ways:


1. Withdrawing up to the investment in the contract

2. Borrowing funds from the policy


Funds that are left within the policy for life will never be subject to income taxes and heirs will receive the funds as an income-tax-free death benefit.

PPLI and PPVA are also available through 1035 (like kind) exchanges from existing life or annuity policies which can allow existing policy owners to lower fees and gain access to greater investment choices. The Strategic Risk Management team provides all structuring, reporting and accounting services needed for the management of PPLI Investment Accounts. Our experienced advisors and support teams can help you understand if you can take advantage of the tax benefits of PPLI. This tax strategy, for qualified high net worth individuals, involves properly structuring a life insurance policy to reduce the tax implications on select investment assets.


Say you’re a business owner or real estate developer, and your money is earning 20 percent. How eager would you be to take your money off the table to buy life insurance with a return of a fraction of that?  Even if you needed it for business succession or estate tax liquidity, it’s difficult to take productive money out of the game.


Instead, someone would lend you the money to pay premiums and take the policy cash value as collateral. Then, you could keep your money in the game and only pay interest on the loan, or even accrue the interest, which might be more attractive. Hypothetically, even if the loan rate was 10 percent, it might be a smart strategy to keep your money working at 20 percent. Of course, you’d realize you had to roll out of this deal at some point. Maybe you have a planned liquidity even in the future. Maybe you simply cash out of something later because cashing out of a productive deal later is better than cashing out now.


But what if you were approached you with an idea that the cash value of your life insurance policy, which collateralizes the bank loan, grows at a rate over and above the interest of the loan to a point where the loan itself could be paid off with a withdrawal of cash from the policy down the road while maintaining enough cash value to support the policy moving forward? Now that’s exciting, no? Free insurance? On paper it certainly can look like it. This is premium financing life insurance. 


Let us help you determine if you might benefit from a new way to finance life insurance.