Under current law, if properly structured, PPLI policies are treated like a traditional policy for tax purposes:
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[1] PPLI carriers typically hold enough value upfront in the money market fund within the separate account to support the deductions for the anticipated policy charges over 12-month periods thereby necessitating a distribution from the SMA or IDF to cover policy charges only once per policy year. If a policy loan is made to the owner, policy assets may need to be sold in order to provide the insurer with the requisite liquidity to make the loan.
[2] Income tax-free loans available if policy is structured as a non-Modified Endowment Contract. Access to cash values through borrowing or partial surrenders will reduce the policy's cash value and death benefit, increase the chance the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured.
[3] IRC §101(a)(1)
[4] IRC § 7702.
[5] IRC §§ 72, 7702A.
[6] IRC § 101, Treas. Reg. § 1.101-1.