WeDigest > Succession > Private Placement Life Insurance
A bespoke and tax-efficient legacy planning solution
Private Placement Life Insurance, commonly referred to as PPLI, is a bespoke universal wealth planning tool for high-net-worth individuals and their families. As its name suggests, it is a sophisticated unit-linked life insurance contract that is offered on a private placement basis and thus tailored to each client’s unique needs. The concept first emerged during the hedge fund boom in the 1990s when investors faced a typically tax-inefficient hedge fund structure. This gave rise to PPLI to fill this gap due to its tax-efficient death benefit coverage and potential cash value accumulation. Distinctively different from traditional retail policies, its edge lies in it its flexibility to adapt to various situations amidst a complex financial landscape. Together with its wide array of benefits, the adoption of a PPLI as a legacy planning structure has been growing in popularity amongst investors, especially in Asia.
The insurance carrier will issue the PPLI to the policyholder that can be an individual or legal entity. The policyholder will determine the beneficiaries and the insured person(s) subject to insurable interest.
The policyholder pays the premium and transfers the permissible assets to the insurance carrier.
The insurer appoints an investment manager who will manage the assets on a discretionary basis according to a pre-defined investment strategy and guidelines as agreed with the policyholder. The assets are safeguarded at a delegated custodian bank.
The policyholder will have access to withdrawals or can pledge the portfolio in exchange for a loan at any point in time
In the event of the death of the insured person(s), it will trigger a pay-out of the death benefit to the beneficiaries.
The insurance carrier will issue the PPLI to the policyholder that can be an individual or legal entity. The policyholder will determine the beneficiaries and the insured person(s) subject to insurable interest.
The policyholder pays the premium and transfers the permissible assets to the insurance carrier.
The insurer appoints an investment manager who will manage the assets on a discretionary basis according to a pre-defined investment strategy and guidelines as agreed with the policyholder. The assets are safeguarded at a delegated custodian bank.
The policyholder will have access to withdrawals or can pledge the portfolio in exchange for a loan at any point in time
In the event of the death of the insured person(s), it will trigger a pay-out of the death benefit to the beneficiaries.
Case Study, Mr & Mrs Wong’s Needs
As we delve into the benefits that PPLI has to offer, let us consider the case of Mr and Mrs Wong, a retired couple who has built up a substantial portfolio comprising a wide range of assets. Here, the couple faces a pressing need to preserve their wealth and legacy and to ensure it is passed on smoothly to their next generations. So, how can the couple harness the potential of PPLI to enhance their legacy planning?
To incorporate their broad range of assets
A PPLI’s edge lies in its flexibility and open architecture to complement other estate planning solutions and various investment strategies. As the investments are legally owned by the insurance carrier, the structure faces fewer constraints due to citizenship issues and can access a more diverse spectrum of asset classes – from traditional instruments to exotic assets such as private equity, hedge fund, real estate etc.
To safeguard their hard-earned wealth
If structured correctly, the assets within the PPLI are protected against potential creditors, thanks to insurance laws that exempt life insurance from the claims of creditors. Furthermore, the assets are parked under a segregated account of the insurance carrier, protecting the cash value from any claims from the insurer’s creditors as well.
To continue to grow their wealth
A PPLI can also reap powerful tax benefits in three aspects.
Smooth transfer of wealth to their beneficiaries
Wealth transfer can be carried out effectively without the need for a complicated probate process or a will, therefore securing a direct and efficient pay-out to their beneficiaries to meet their immediate needs.
To protect their identity and personal information
PPLI boasts enhanced privacy with insurance secrecy laws, in addition to lower or no reporting requirements. Information on the beneficiaries and underlying assets are kept confidential within the policy.
The design of a PPLI generally focuses on maximising cash value accumulation where the death benefit is often kept at a minimum, resulting in relatively lower death benefit coverage compared to traditional life insurance policies. The overall death proceeds are thus chiefly driven by the underlying investments.
At the same time, as the cash value of the PPLI is dependent on the market, it is exposed to investment risks such as volatility or possible underperformance at times. That being said, this could also work in favour of the policyholder as it allows for growth opportunities and potential outperformance. In addition, a PPLI instils strict investor control where the policyholder cannot influence the specific selection of investments, so as to ensure that the underlying assets are recognised as insurance to benefit from tax-free returns.
In the event of surrender or termination, while a PPLI does not impose surrender charges, the appreciation gain from investments could be subjected to income tax, thereby negating the purpose of a PPLI. Therefore, to fully exploit its benefits, a PPLI is most suitable for those who seek to pursue a long-term estate planning solution to hold until death.
Some key cost considerations include:
Cost of insurance (Including Mortality Charge)
Custodial Fee and Management Fee(Including Mortality Charge)
As the needs of high-net-worth individuals and families evolve, PPLI has emerged as a compelling tool for wealth and legacy planning. It stands out in its level of flexibility and portability to serve the needs of increasingly global families. In addition, its unique design provides the policyholder access to both life insurance and tax-efficient investment opportunities, combining the best of both worlds. Due to the complexity of a PPLI, it is paramount to consult trusted and professional help to tailor a customised policy for your beneficiaries. SingAlliance is an independent wealth manager with a presence in Singapore, Hong Kong and Switzerland. With our expertise, infrastructure and network, we can guide and refer you to trusted specialists to set up a PPLI to seize wealth planning opportunities and bring you greater peace of mind. For further information, please get in touch with us.
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