Private-placement life insurance: costs, limits and risks

Private-placement life insurance, known as PPLI, is a version of variable universal life insurance that lets policy owners place excess premiums into a wider set of investments than standard policies. Those investments can include private equity and other alternative assets. Investment growth inside the policy is tax-deferred, and death benefits are generally not taxable as income to beneficiaries.

Policyholders can also borrow against the policy’s cash value, a feature some clients use to access funds during their lifetimes. Typical minimum capital cited by advisors ranges from $5 million to $10 million in available liquidity to justify the structure and its fees.

Advisors describe PPLI as suitable only for a narrow client profile: households with large pools of liquid assets that want to convert those assets into tax-advantaged cash inside an insurance contract while retaining the option to borrow. Michael Leibowitz, founder of Tax Efficient Solutions, called PPLI “a fantastic product, under the right set of circumstances for the right individual” and added that the product’s complexity makes it inappropriate as a default choice for many clients.

Adam Bergman, who works with self-directed retirement accounts, described the typical client as someone with “a chunk of money sitting around” who wants to seek tax-advantaged growth and maintain borrowing options. He noted that PPLI allows investment in alternatives but also requires certain diversification and limits on investor control.

Issuers generally require an independent manager to run the policy’s investments, and policies must meet diversification and other regulatory conditions to preserve favorable tax treatment. Owners usually cannot exercise direct control over the underlying private investments while maintaining the insurance-based tax advantages.

Upfront costs and commissions can be large. John Pantekidis, general counsel and a managing partner at TwinFocus, warned that “there’s huge, huge commissions with a lot of these products, and that’s why they’re being pushed.” He added that the situations in which PPLI makes sense are narrower than for life insurance in general.

Estate-tax exposure is another structural issue. If a policy remains an asset of the insured at death, the death benefit or cash value could face estate taxes. Advisors frequently recommend holding the policy in an irrevocable trust to remove it from the taxable estate, a step that introduces added legal complexity and cost.

Regulatory scrutiny increased after a 2024 report from Democrats on the Senate Finance Committee described some uses of PPLI as a tax shelter. Some tax and insurance experts say the IRS faces limits in challenging policies because PPLI relies on insurance-law rules and carrier compliance. Audit risk for individual policies is viewed by some advisors as relatively low, but the political focus has created uncertainty.

Wealth managers and advisors report they are weighing fiduciary and suitability concerns when discussing PPLI with clients. They say a detailed review of liquidity, investment plans for alternatives, fee structures and estate planning is typically required before recommending a PPLI policy.