Private Placement Investing

Private placement insurance can serve as a strategic investment tool for ultra-affluent investors in combatting the income tax burdens associated with traditional and alternative investments.  The operative question is how much “tax alpha” can be generated through the use of a private placement insurance product.  In short, private placement life insurance (PPLI) can eliminate income taxes on investment earnings while a private placement variable annuity (PPVA) can defer income taxes on such earnings.  Investors turn to PPLI policies  when the frictional costs of the insurance charges are less than the tax friction the investment would ordinarily experience.  PPVA policies do not offer permanent elimination of income taxes on earnings like PPLI policies, but they are effective tax deferral tools with less complexity than PPLI policies.

Although the tax advantages are the primary drivers for investing through private placement insurance products, the products can offer additional benefits to investors, including a death benefit (not applicable to PPVAs), elimination of K-1 reporting and additional creditor protection, among others.  Private placement insurance products are also useful planning tools for foreign (non-US) trusts and pre-immigration planning.

Implementing an investment strategy through private placement insurance requires both thoughtful analysis in the design of the program and diligent monitoring of the program to yield optimal results.

Pinnacle consultants are poised both to guide clients through the implementation of these tax-management tools and to serve as long-term stewards of these programs to assure maximum efficiency.

If you have three minutes, you will enjoy this introductory video, "Tax-Efficient Alternative Investing," that we produced to help advisors and their clients more easily understand the strategy and potential benefits that PPLI and PPVA might offer.