How John Amassed a Million: A Private Placement Case Study

Let’s walk through how someone could amass millions more through Private Placement Life Insurance (PPLI) than through most other investment vehicles. For a definition, benefits and other considerations for PPLI, read our blog, “Why You’ll Never View Life Insurance The Same Way Again”.

Let’s say John reads an article, and realizes that for PPLI, funds within the policy are not taxed (if set up properly), so the money invested in the policy can compound at a faster rate than with a traditional taxable investment (such as a hedge fund). Distributions can be received tax-free, and the death benefit is not taxed. This is important because after 2026, estate taxes are going to be 40% of anything over about $5 million (per individual, doubled for couples).

In addition, when compared to a regular life insurance policy, PPLI fees are lower, and there is greater flexibility with the investment portion. PPLI customers can achieve significantly higher returns than with other types of insurance (keep in mind PPLI customers also shoulder more risk than traditional life insurance).

With all the benefits in mind, John reaches out to an experienced advisor, and they learn a few more things:

  • He can better shield his assets from creditors if he works through an international private placement policy provider.
  • They also learn that international policies have more flexibility, so there are more options for investable assets.
  • It may seem unnerving to use an international provider, but they find a provider that operates in compliance with US Tax regulations. They also comply with the laws of their own highly regulated jurisdiction to provide asset protection. Best of all, they are backed by a highly rated domestic insurance company through reinsurance. All this provides the safety net John was looking for.
  • The premiums are high, but John is able to invest both cash and other assets, as well as finance some of the premium payment.

When everything checks out, he submits an application and finds that he is able to qualify for a PPLI policy. He designates a beneficiary (or a few), and he is ready to pay the premiums as agreed. When he later overhears his neighbor Tim complaining that he expected more cash value from his life insurance policies, he realizes that he’s made a very profitable decision with PPLI. Let’s take a look at a hypothetical case showing just how much more he would likely be earning.

Traditional Insurance vs PPLI

  • Scenario 1 (Traditional): Tim invests in a regular life insurance policy. He puts in 100,000 per year for 15 years. The policy nets a 4.35% return. After fees, his cash value nets out at $1.6 million.
  • Scenario 2 (PPLI): John invests in a PPLI policy. He puts in the same $100,000 per year for 15 years. The policy performs at a 7% rate of return due to his investment selections. After fees, he nets $2.7 million. The difference of over $1 million lies in the type of policy; PPLI has greater upside potential and lower fees. If Tim only knew…

Setting up your policy correctly is critical; it is imperative to lean on someone who has experience with PPLI. If you are interested in finding out more about PPLI and how you can use it to your advantage, our team at Axia Global can help. Just give us a call. It is our goal to make a measurable difference in your financial life.

Note: the statements above should not be considered financial, legal or tax advice, but ideas for careful consideration with your trusted financial advisors and lawyers. For current tax or legal advice, please consult with an accountant or an attorney.