PPLI is a comprehensive wealth management tool provided by domestic and international insurance companies that enables clients to invest through variable insurance products on a tax-advantaged basis in specific investments. This product is specifically designed for ultra- affluent investors to defer taxes on the growth of their investments while also protecting those assets from creditors.
In the high-net-worth market, PPLI is gaining momentum and generating buzz. While many may not be as familiar with PPLI, it follows many of the same principals as a retail life insurance policy that is optimally designed to take advantage of the tax-favored treatment of life insurance. To appreciate PPLI, we need to first understand Variable Universal Life (VUL) insurance and the unique tax treatment of life insurance policies.
Retail Variable Universal Life
Life insurance is a valuable tool for providing death benefit protection. However, you may not realize that when properly structured and managed, life insurance can potentially provide tax- free retirement income and many other benefits.
Contributions made to the policy are placed into a separate investment account linked to the contract called the “cash value”. This account is considered segregated from the general assets and liabilities of the insurance carrier and the policy hold chooses how the funds are invested within a preselected lineup of separate account options. These separate accounts give the policy holder discretion over the underlying investment strategy of the policy allowing the policy holder to determine the amount of market exposure and bring the investment strategy into alignment with their particular risk tolerance and objectives.
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