The PPLI Solution: Delivering Wealth Accumulation, Tax Efficiency, and Asset Protection Through Private Placement Life Insurance / Edition 1Hardcover (2024)

FAQs

What is the PPLI tax strategy? ›

'Tax Nirvana'

Also called an “insurance wrapper,” a PPLI policy is structured as a private contract between the insurer and the investor and lets the investor “wrap” an investment portfolio within the life insurance, thus allowing the investor to avoid paying taxes on the buildup of income inside the policy.

By blending investing and life insurance, PPLI policies allow affluent individuals to grow their wealth while ensuring financial protection for their heirs. PPLI can be a beneficial investment in scenarios such as estate planning, asset protection, and tax-efficient investing.

The PPLI essentially converts a very tax-inefficient investment, such as a hedge fund, into a very tax-efficient one for a high-net-worth investor. This strategy offsets the impact of current income by placing the assets in a life insurance policy with tax advantages similar to a Roth IRA.

One primary risk when borrowing against a PPLI policy is that the account value becomes insufficient to cover policy charges and the policy lapses. If the policy lapses, then the policy loan balance in excess of the basis becomes taxable.

Life insurance allows you to transfer a death benefit to beneficiaries income tax-free. While estate taxes can apply to life insurance, there are strategies to avoid these taxes. Permanent life insurance also builds cash value you can use while alive. Cash value grows tax-free while in your policy.

One of the significant disadvantages of private placement life insurance is its inherent complexity and lack of transparency. PPLI policies are structured in a way that involves multiple layers, including insurance contracts, investment accounts, and partnerships.

Private placements are the sale of a company's shares to a number of pre-selected investors. The process takes place privately, hence the name, meaning that a company does not have to go through the regulatory hurdles of an IPO and being a public company but is still able to raise external funds to expand the business.

Limited Access to Capital: Private placements restrict access to a limited pool of investors. It reduces the potential for raising substantial capital. This can be a drawback for companies seeking significant funding for expansion or development.

IUL links its investment returns to a market index, offering a degree of market participation with caps on returns and some downside protection. In contrast, PPLI provides more flexibility and potential for higher returns, albeit with higher risk and complexity.

Is private placement offering good or bad? ›

Private placement can be a cost-effective way for companies to raise capital. Private placement offerings are exempt from many of the regulatory requirements that apply to public offerings, which can significantly reduce the costs associated with offering securities.

Captive insurance can have legitimate tax benefits for business owners. Premiums paid to a captive insurer can be tax-deductible if the arrangement meets certain risk-distribution standards. Thus, the business gets a current year write-off even though losses may never occur.

Dividends from the insurance company

In general, the "interest build-up" portion of the annual increase in the policy's cash value is not taxed annually by the IRS. Dividends — those payments the insurance company may make to your account depending on their profits that year — are also generally not taxable.

Answer: Generally, life insurance proceeds you receive as a beneficiary due to the death of the insured person, aren't includable in gross income and you don't have to report them. However, any interest you receive is taxable and you should report it as interest received.

(The primary feature of a viatical settlement is the prepayment of a reduced death benefit.) What is the primary feature of a viatical settlement? (One of the major tax advantages of life insurance is that the beneficiary generally does not pay income tax on the proceeds.)