Private Placement Life Insurance

Private placement life insurance is a form of variable universal life insurance offered privately, rather than through a traditional life insurance carrier. The primary advantages of private placement life insurance are the tax benefits and investment options.

Because it is a life insurance product, it capitalizes on the income tax benefits of life insurance, which include: (i) tax-free accumulation of investment earnings (dividends, interest, and capital gains), (ii) if structured properly, withdraws from the policy will not be subject to tax reporting, thereby making the withdrawals tax-free; and (iii) income tax free death benefit proceeds to the policy beneficiaries.

There are two ways to purchase private placement life insurance products: offshore and domestic onshore. The process of structuring a customized private placement life insurance policy can take as long as six to nine months. An experience team of advisors should be able to assist in recommending whether offshore or onshore private place life insurance is best suited for your situation.

While private placement life insurance is similar to traditional variable life insurance in function, it does have some significant differences. First, the policy owner has a wider range of investments to choose from, including hedge funds, private equity, derivatives, and real estate investment trusts. There are no restrictions on the type of investments that can be managed within the policy, and private placement life insurance can offer financial privacy and significant protection from future creditors.

Most private placement life insurance policies are available through carriers outside the United States; therefore, their products often do not include significant sales loads and commissions. In addition, private placement life insurance carriers rarely engage in advertising. These reduced costs enable the carrier to provide high net worth client’s life insurance at a reduced cost. However, the regulatory environment governing life insurance outside of the United States is not as restrictive. While lack of regulation may not be comforting to traditional life insurance consumers, high net worth individuals and their advisors are more likely to be able to carefully evaluate the merits and risks associated with private placement life insurance policies purchased outside the United States.

Certain risks do exist when purchasing private placement life insurance. Investors must understand the investments made with the cash value of the policy may not necessarily generate a profit. If the investor’s chosen fund under performs, the investor may have to sell shares, realize a loss, and invest in something else. The realized loss cannot be used to offset personal realized gains for income tax purposes.

The Securities and Exchange Commission (SEC) does not regulate private placement life insurance produces because they are unregistered. However, the Internal Revenue Service (IRS) regulates the tax treatment of different life insurance policies and monitors investor control.

In order to qualify for a private placement life insurance policy the purchaser must be an accredited investor under SEC rules and guidelines. Premiums can be paid as a single premium or spread out into multiple payments in the early years of the policy. Premium payments can start from a low of $100,000 to as high as $100 million or more. Private placement life insurance fees and expenses are typically more competitive than retail insurance products. Provided the policy is structured properly, the annual cost of the policy will be a small fraction of the annual tax associated with similar investments in a taxable environment.

Private placement life insurance is a useful tool for the ultra-wealthy when utilized correctly and with the proper assistance and guidance of an experience team of advisors. To learn more call us at (877) 579-9574 or submit an online request for additional information.