I write about the creation and management of exceptional wealth. Opinions expressed by Forbes Contributors are their own.
Private placement life insurance (PPLI) and private placement variable annuities can be very powerful ways for affluent individuals to grow their wealth. The power of these products is that they combine the tax benefits of insurance products with selected money managers. A tremendous appeal of private placement life insurance and private placement variable annuities (PPVA) is that the investment options can be tailored to a wealthy investor’s needs, and the cost of insurance per dollar of coverage is much reduced.
According to Frank Seneco, president of the advanced planning firm, Seneco & Associates and author of Maximizing Personal Wealth, “The importance of PPLI and PPVA is that they can be a component of more complicated tax strategies. If you, a wealthy individual, for example, have a significant windfall that results in a large infusion of ordinary income in a particular year, PPLI in conjunction with a charitable trust can offset the tax while supporting charities including private foundations. PPLI can also be used to fund corporate benefits and can be used to create a charitable retirement plan.”
The uses of private placement life insurance are extensive. The drawback is that to get optimal results, PPLI or PPVA in these and other scenarios requires the expertise of a high-caliber wealth manager.
The complication for many wealthy individuals is that – broadly speaking – not many financial or legal professionals are knowledgeable about private placement life insurance or private placement variable annuities. In a survey of 803 financial advisors, nearly two-fifths of them say they are knowledgeable about PPLI and PPVA, which includes any other professional who is part of their team. However, we get greater insights by the fact that less than three percent of these financial advisors have provided a client with either a PPLI or a PPVA product. Meanwhile, in survey we conducted of 262 wealthy entrepreneurs, only eight of them have availed themselves of the benefits of PPLI or PPVA.
This tells us that it is highly likely a larger percentage of the high-net-worth market can benefit from PPLI or PPVA, and because of a relative dearth of high-caliber wealth managers and aligned professionals, they are not being introduced to many super-rich solutions such as these two related products. The reason for this is many times the limited expertise and experience of financial and legal professionals. Only by working with a high-quality wealth manager who is coordinating a team of exceptional specialists can the affluent best grow and protect their wealth.