Individuals worth several million dollars require a more complex type of insurance policy that protects their financial assets and reduces their taxable obligations in the process. By investing a large percentage of their holdings in a private placement life insurance policy, they can reduce the amount of taxable property they have at their disposal.
What Is Private Placement Life Insurance?
A private placement life insurance (PPLI) policy is designed to provide both financial security and a variety of investment opportunities for individuals who have several million dollars that they can set aside. Using the surplus money to invest in these tax-exempt accounts will earmark the money for specific purposes and prevent it from being taxed as an asset or for producing net gains through interest.
Who Benefits the Most From Private Placement Life Insurance?
Wealthy individuals or families who have a net worth in the millions of dollars will benefit the most from having a PPLI policy. This type of policy is extremely beneficial for individuals or families with foundations, financial trust funds, banks, or large corporations that help them invest or disperse their money into hedge funds or alternative investment programs. PPLI policies offer tax advantages that allow an investor’s money to continue to work for them instead of being a tax burden.
How Does PPLI Work?
Investing extra funds that are just earning interest in a bank account or trust fund will give the money a chance to work towards your future instead of merely putting you in a higher tax bracket. A PPLI policy shelters these extra funds by placing them in tax-free accounts so that the money that is earned is reinvested back into the policy. For this type of insurance policy to be beneficial, the investor must commit approximately $3 to $5 million to the policy over the first few years of the policy being in place.
Accessing Your PPLI Funds
A private placement life insurance policy is designed to build cash value. Once this value has started to increase, it can be withdrawn or borrowed against at any time. Withdrawing money over and above the base amount of the policy will result in the excess being considered as taxable income. If only the cash value is used, the money can be withdrawn without incurring any penalty or fee.
Differences Between Retail Life Insurance and PPLI Policies
The primary difference between a retail life insurance policy and a PPLI policy is in their overall structure. Retail life insurance policies only include specific types of subaccounts to guarantee how the policyholder’s money is invested. With a PPLI policy, the policyholder can create a customized list of subaccounts that allow them to choose which types suit their specific needs. While the list of subaccounts is somewhat limited for retail life insurance policies, a PPLI policy can include almost any kind of policy based on the policyholder’s discretion.
Benefits of a PPLI Policy
There are several benefits of a PPLI policy over and above the tax exemptions. With this type of policy, larger amounts of money can be sheltered, securing the policyholder’s financial stability for the future. Another primary benefit has to do with the policyholder having access to the funds they need when they need them. There are no credit checks or withdrawal requirements that must be met.
If you are trying to find ways to protect your financial nest egg, and learn more about different investing methods, talk to the professionals at Premier Risk, LLC. We serve Long Island and surrounding cities in New York, and we look forward to hearing from you today.