Private Placement Life Insurance

Speaker 1 (00:00):

Private placement life insurance, what is it? And who should be paying attention? P P L I is getting more attention lately, but from who, as the name implies, private placement life insurance is akin to a private placement security limited to an accredited investor. Most P P L I products are gonna require a seven figure premium over the first handful of years. Clearly, this is gonna limit participants, so you have to be wealthy. But why do it though? An effective estate tax planning transaction? Most PPL I is put in force for income tax planning. Though much attention may be paid to tax efficient investing, they’ll probably always be limits to this. Permanent life insurance has tax-free cash value accumulation, making it a perfect environment for tax inefficient investments. These transactions are usually built with a minimum death benefit, reducing the cost of insurance and allowing the cash value to grow more efficiently over time, which also increases death benefit. 

Speaker 1 (00:58):

The bottom line is we’re comparing the tax drag on our investments to the internal costs of life insurance. If the cumulative costs of insurance and internal policy fees are less than the effective taxes, then we have something to talk about. If taxes aren’t in play, then $10 million at 8% over 30 years might grow to a hundred million, not just 50. Another appeal of P P L I is that it may be the most transparent form of life insurance with every bit of crediting and expenses detailed on a spreadsheet. Additionally, investment opportunities are more diverse within P P L I. Although don’t try to put your racehorse or private business interests inside a contract, subject to investor control rules and diversification requirements. When it comes to investments, the world is your oyster from insurance, dedicated funds to your own investments managed by your own advisor. Many of these contracts are very customizable, and they’re also opportunities for onshore and offshore contracts, as well as policies with guaranteed mortality charges. The cynics are saying these contracts aren’t more popular because there are no large upfront commissions and agents aren’t introducing ’em to their clients. There may be some truth to this. This makes it that much more important for advisors to introduce all opportunities to their clients. While I’m only superficially touching on private placement life insurance today, if a low cost, tax efficient, customizable asset protection strategy offers desirable traits to a diversified portfolio, maybe it’s worth a phone call to dig a little deeper.

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