Private Placement Life Insurance

PPLI lets you hold alternative assets such as hedge funds, private equity, or real estate — all inside a tax-advantaged variable universal life insurance wrapper. Yet because it’s a life insurance contract, protection is still the core purpose.

How Does Private Placement Life Insurance Work?

At its core, this kind of insurance is a universal life insurance policy paired with a customized investment account. Here’s how it works in practice:

• You purchase a policy, often with a high minimum premium commitment.
• The policy is structured with a large death benefit to meet IRS rules and provide estate planning advantages.
• The cash value is invested in a separate account, tailored to your risk tolerance and goals.
• Investments can include alternatives not found in standard life insurance products.
• Any growth inside the policy is tax-deferred, and the death benefit is generally paid to heirs tax-free.

An Example of How PPLI Can Work

Michael is a 55-year-old entrepreneur who recently sold his company. After the sale, he has $20 million in investable assets and wants to both grow his wealth and leave a legacy for his children. Traditional life insurance feels too limited — he wants protection for his family, but he also wants to invest in private equity and hedge funds.

By setting up a PPLI insurance policy, Michael funds the policy with several million dollars. The cash value of the policy is invested in alternative funds chosen with his advisor. The investments grow tax-deferred inside the policy, and when Michael passes away, his children receive both a substantial death benefit and the investment gains without income tax.

Who Can Benefit from Private Placement Life Insurance Policies?

Private placement life insurance is not designed for everyday policyholders. It’s aimed at ultra-high-net-worth individuals and families with complex financial planning needs.

You may benefit from PPLI if you:

• Have at least $10 million(1) in investable assets.
• Want access to alternative investments inside a life insurance structure.
• Are focused on legacy planning and transferring wealth efficiently.
• Need strategies to reduce tax impact on high-growth investments.
• Work with financial advisors who can manage sophisticated portfolios.

When PPLI Makes Sense

PPLI makes sense when traditional life insurance is too restrictive, and you’re looking for a customized way to combine protection with advanced wealth management. It’s most effective for people who want tax deferral, flexibility, and wealth transfer advantages in one package.

How is PPLI Different Than Typical Life Insurance?

Private placement life insurance stands apart from traditional policies in several key ways. While an average life insurance plan focuses mainly on protection, insurance companies that offer PPLI blend that protection with advanced investment options and tax benefits.

Investment Flexibility

Traditional life insurance usually limits the policy owner to fixed accounts or a narrow set of mutual funds. With PPLI, the cash value can be invested in hedge funds, private equity, real estate, and other alternatives chosen with your advisor.

Cost Structure

Instead of paying retail insurance fees, policyholders cover customized insurance carrier administrative costs. For ultra-wealthy families, this often results in lower relative expenses compared to layering insurance on top of existing investments.

Tax Treatment and Death Benefit Structure

PPLI policies are designed to stay within IRS rules and avoid Modified Endowment Contract (MEC) status. To do this, they’re structured with large death benefits relative to the cash contributions. The setup allows the cash value within the policy to grow tax-deferred, while the death benefit is generally paid income tax–free. The high coverage amount also makes PPLI a powerful estate planning tool for transferring wealth efficiently.

Key Features and Benefits of PPLI Policies

Private placement life insurance offers unique advantages that appeal to ultra-high-net-worth individuals looking for more than standard protection:

• Tax deferral: Investment growth inside the policy is sheltered from annual income and capital gains taxes.
• Tax-free death benefit: Beneficiaries generally receive the death benefit free of income tax.
• Investment flexibility: Cash value can be invested in private equity and other alternatives.
• Custom structure: Fees and policy design can be tailored to fit family or business planning needs.
• Estate planning advantages: PPLI helps preserve and transfer wealth efficiently across generations.

Drawbacks and Risks of Private Placement Life Insurance

Like any advanced planning tool, private placement life insurance has potential downsides. Understanding them upfront helps avoid surprises.

• High entry point: Most policies require millions in investable assets and high premium payments, making them accessible only to ultra-high-net-worth families.
• Complexity: PPLI involves sophisticated tax, legal, and investment planning. It requires ongoing management from financial and tax professionals.
• Regulatory oversight: Policies must be carefully structured to comply with IRS rules and insurance regulations.
• Liquidity concerns: Premiums are often large and must remain funded for the policy to work properly.  The illiquidity of this type of policy would not be suitable for those needing short-term access to capital
• Market risk: Because investments can include alternative assets like real estate and cyrptocurrency, policy performance depends on how those assets perform. All investing involves risk including loss of principal.  

*Note: To keep your policy active, the cash value must be high enough to cover ongoing charges even during market downturns. If the cash value drops too low, you may need to make additional payments.*

How to mitigate PPLI risks

A thoughtful approach can make private placement life insurance more effective and less risky. Key practices may include:

• Work with experienced tax, legal, and financial advisors.
• Review the policy design regularly to ensure it still fits your goals.
• Maintain sufficient liquidity outside the policy to cover ongoing premiums.
• Understand all costs and fees before committing.

Key Takeaways on how PPLI Works

Private placement life insurance is a highly specialized strategy for ultra-high-net-worth families. Here are the main points to remember:

• PPLI combines permanent VUL insurance with a flexible investment account.
• Access to alternative assets such as hedge funds, private equity, and real estate is a key feature of the policy.
• Growth inside the policy is tax-deferred, and the death benefit is generally income tax free.
• Policies are structured to avoid Modified Endowment Contract (MEC) status, preserving tax advantages.
• PPLI requires significant wealth, professional guidance, and long-term commitment to work effectively.

Making the Most of Life Insurance

Private placement life insurance is a highly specialized tool for ultra-wealthy families with complex planning needs. For most people, however, traditional life insurance like whole lifeand term are simpler and more affordable ways to protect loved ones.

Ethos makes it easy to get coverage online, with no medical exams for most applicants (just answer a few health questions) and free access to estate planning tools like wills and trusts. If you don’t need something as complex as PPLI, Ethos offers straightforward solutions to help protect your family.