Frequently Asked Questions

PPLI is a life insurance product formally only available for high net worth investors. PPLI offers investors the ability to select asset managers. This is attractive to high net worth clients because they want investments that involve more sophisticated strategies than traditional investing. PPLI is an investment vehicle whose main goals are income, capital gains and estate tax savings along with asset protection, while maximizing investment choices and incurring as little insurance cost as possible.

The tax advantages of life insurance are the same whether the policy is acquired onshore or offshore. Earnings on policy cash values, including dividends, interest, and capital gains are not taxable to the policy owner because they accumulate within the policy. In addition, withdrawals and policy loans can be used to access policy assets. There are enhanced tax and other advantages available by acquiring a PPLI policy.

The core motivation for acquiring PPLI is to establish a tax-free investment environment, at the lowest possible cost and in which an investor may designate a money manager to manage the policy assets. 

When investments that are not income tax-efficient (such as hedge funds) are held inside PPLI its tax advantages enhance the performance of the underlying investments.

The PPLI structure allows policyowners to change fund managers and investment styles to meet their investment objectives by reallocating assets among investment funds available within the PPLI contract.

PPLI is Asset Protected. Separate accounts established for each individual policy are not subject to the claims of the insurance company’s creditors or claims against any other policyholder.

Insurance Can Negate Fraudulent Transfer Attacks. As the purchase of a policy is an equal value for value exchange, it would be difficult to prove the transaction was fraudulent. 

Business Purpose. Was a transfer made solely to evade creditors or was there a business purpose? The business purpose for purchasing insurance is well recognized and respected - family protection and estate planning. There normally is no business purpose in setting up an offshore trust.

Acquiring PPLI requires that the prospective insured undergo medical and financial underwriting. In addition  there are several important insurance design elements that must be carefully addressed in the policy acquisition process.

The beneficiares will receive income tax-free death benefit consisting of the cash value of the policy (the premiums paid, plus growth) plus the insurance element.

The separate accounts of the policy will be held in accordance with the asset manager’s normal custodial arrangements. There is no requirement of offshore custody. 

The onshore and offshore companies we use all have tax opinions explaining the legal and tax concepts of life PPLI and are available to policy purchasers.

The key components of PPLI have been Court tested. Numerous Internal Revenue Code sections are applicable, and many rulings and regulations have been issued interpreting these Code sections, all resulting in straightforward rules and guidelines.

Another key concept is that the installment sale and the promissory note received in exchange for assets transferred into the policy must be at arms-length. Therefore the note must be equal to the fair market value of the assets transferred and the interest rates must be at least equal to the IRS published minimums.

Tax changes are generally not applied retroactively. The insurance industry has a powerful lobby that would guard against changes to the tax concepts involving life insurance

Policies that are set up as a Non Modified Endowment Contract (non "MEC) allow for policy loans on a tax advantageous basis.

Through proper structuring, onshore and offshore PPLI can be used as part of a family’s estate planning combining estate, gift, and generation-skipping transfer tax benefits.

Subject to the policy meeting specific diversification rules, the type of investments that can be held in the segregated policy account is unlimited.   While the client is prohibited from exercising control over the selection of securities, a manager, recommended by the client, may make investment decisions.

Offshore carriers offer premium payments, investments, withdrawals, borrowings, and death benefits in a variety of currencies.

Investor control. In order to qualify as life insurance, the client cannot exercise control over the specific investment decisions made.  The client can choose among investment managers but cannot direct a manager to purchase a particular investment.