THE NUTS & BULTS OF PPLI
The Goal Our goal is creating a system that minimizes your risk and optimizes your returns. With PPLI, the aim is realizing the following benefits:
Legal asset protection
Investment flexibility / universal access
Liquidity and convenience
Inheritance / Succession mechanism
COMPLIANCE – and peace of mind!
The basic Setup
The basic setup of a PPLI structure is simple. As depicted in the graph below, the policyholder pays a premium to the insurance company. The premium can be paid by means of a cash wire transfer, a 1035 transfer of an existing insurance policy or annuity, or by means of a transfer of a portfolio of securities. Upon receipt, the insurer issues a policy certificate for the policyholder confirming receipt of the premium and includes the terms as agreed upon from the application documents: policyholder, insured person, beneficiaries in case of death, beneficiary of annuity payments, investment strategy, investment advisor, etc.
The premium is deposited by the insurer in a bank account that is owned by the insurer for the sole benefit of the policy, and hires the investment adviser of your choice to manage the assets in the account in accordance to the investment strategies that you may select from time to time.
The “Beneficial Ownership” of the premium is shifted to the insurance company. Thus, the investor is not a US person; it is the insurer, or a non-US institutional investor. This opens up the access for the account to investment opportunities otherwise not available to you as a US investor. It is also the key to tax savings.
Insurer counter-party risk is eliminated via segregation of the policy account. The insurance legislation of the jurisdiction of the insurance company provides for legal separation of the assets in the policy account so that they are not part of the insurer’s balance sheet. Hence, your investment is not available to the creditors of the insurer or to creditors of other policyholders.
Investments in a properly designed and maintained US compliant policy grow free of income and capital gain taxes. Note that the policy will need to meet certain requirements in order to retain its tax benefits (read more in our section Planning Caveats)
On death of the insured person(s), the insurer pays out any remaining funds in the policy directly to the beneficiaries listed in the policy, without need of probate.
The PPLI structure affords a great level of flexibility. Most elements can be adjusted during the life of the PPLI structure in order to meet the changes in one’s family situation or lifestyle.
PPLI is exceptionally versatile and can be structured to suit most individual needs. Similar to trusts, they provide for integrated and flexible beneficiary designations, a variety of funding possibilities as well as other features that can be adjusted by the investor at any time, and that vastly expands the array of planning possibilities available to the investor.
A manifold investment and structuring possibilities "above" and "below" the policy arise. As portrayed by the chart below, there are a number of elements that can be considered in configuring your policy structure.
The policy contract itself needs to define the policyholder (owner), the insured person(s) and the designated beneficiaries (to whom the death benefits are paid after the last insured passes away). It is noteworthy that the number of insured persons, with some insurance companies, is not limited. This obviously facilitates long-term generational planning. "Above" the policy, one must consider whether ownership of the policy should be direct at the individual level, or whether a trust, partnership, or corporation should act as policyholder.
"Below" the policy, the segregated account structure enables you to create a personally tailored investment portfolio, with your personal strategy that may involve equity, bonds, precious metals, commodities, mutual funds, ETF's, etc. Importantly, some insurers may also allow for the inclusion of non-bankable assets.
Our service proposition is best compared to that of an architect or general contractor. We help you understand the options, design and implement a plan and then coordinate and maintain it moving forward. Thus, just as an architect coordinates matters with the engineer, the carpenter, the mason and the plumber, we will integrate the advice and coordinate the structure setup with the insurers, banks, asset managers, fiduciaries, and other parties, as needed.