Private placement life insurance (PPLI) is institutionally priced and typically has a lower cost structure than traditional life insurance products. A policyholder may expect the following policy fees:
Cost of Insurance: The pure cost of the death benefit required for the policy to meet the definition of life insurance. This cost is roughly the equivalent of the cost of obtaining a term insurance contract for one year, each year of the policy and at the age of the insured that year.
Set-Up or Establishment Fee: A premium-based fee charged each time a premium contribution is made to the policy. This fee can range from between 40 to 150 basis points, depending upon the total amount of premium paid.
Mortality & Expense (“M&E”) Fee: An asset-based fee which is based upon the account value of the PPLI policy. M&E is an annual fee which an insurer may collects quarterly and ranges from between 40 to 150 basis points, depending upon the size of the policy contribution and estimated growth in the policies underlying investments.
Investment Management Fee: Charged at market rates and paid at the Insurance Dedicated Fund (IDF) and/or Separately Managed Account (SMA) level of the separate account. The investment returns are reported to the separate account net of these fees, which effectively makes the entire fee tax-deductible, without regard to the deduction limitations typically imposed on taxable accounts for itemized deductions or alternative minimum tax purposes.
Deferred Acquisition Charge (DAC): The amount of an insurer's acquisition costs incurred as premium is written but earned and expensed over the term of the policy. DAC for PPLI varies widely with the charge ranging from 70 to 100 basis points.
State Premium Tax: South Dakota enjoys one of the lowest state premium taxes in the country. On an annual basis, the first $100,000 of premium paid is taxed at 2.5%. Premium paid above $100,000 is taxed at just 8 basis points, or 8/100 of 1%.
