Private Placement Life Insurance (PPLI) can be used in a variety of ways, depending on the policyholder's specific financial goals and objectives. Here are a few common uses of PPLI:
- Estate planning: PPLI can be used to transfer wealth to future generations while minimizing estate taxes. The policyholder can create an irrevocable life insurance trust (ILIT) to own the policy and to receive the death benefit, which removes the policy's death benefit from their taxable estate. Investments held within a PPLI policy receive a step-up in basis at the death of the insured in the form of the income tax-free death benefit.
- Asset protection: PPLI can provide a high level of asset protection for policyholders, especially if they are concerned about lawsuits or creditor claims. Depending upon the state, the policy's cash value is generally protected from creditors and is not subject to attachment or garnishment.
- Charitable giving: PPLI can be used to fund charitable gifts or create a legacy for a favorite charity. The policyholder can name the charity as the policy's beneficiary or transfer ownership of the policy to the charity.
- Business succession planning: PPLI can be used to fund a buy-sell agreement or other business succession plan. The policy's death benefit can provide liquidity to help facilitate a smooth transition of the business to the next generation.
- Tax-deferred growth: PPLI policies offer tax-deferred growth on the policy's cash value, which can help policyholders accumulate more wealth over time.
- Tax Diversification Strategy: PPLI policies can enhance the tax efficiency of highly tax inefficient investments such as hedge funds, private equity and other alternative assets. This allows a policyholder to reduce risk in an investment portfolio while still including these asset classes.
These are just a few examples of how PPLI can be used. To determine whether PPLI is appropriate for a prospective policyholder’s specific needs and goals, it's important to work with an insurance company and financial advisor or life insurance professional who specializes in these products.
