Life Insurance Solutions (PPLI)
Envisage provides advisory, intermediary and other services to life insurance companies in relation to unit linked life insurance policies connected with the United States and other U.S. related issues. Such life insurance policies are always unit linked policies, having bankable securities or other investments underlying the policy.
More broadly, Envisage provides advice in relation to Private Placement Life Insurance (PPLI), Variable Universal Life (VUL) insurance, Deferred Variable Annuities (DVAs) and similar structures. Properly set up and implemented, these life insurance structures are extraordinarily efficient, effective wealth planning tools.
The Private Placement Life Insurance (PPLI) policy is called variable life insurance because the cash value of the insurance policy varies with the investment performance of the underlying assets. The life insurance policy is issued by a long-term life insurance company, often based in jurisdictions which specialise in this area, for example, Liechtenstein, Luxembourg, Bermuda, Barbados.
Premiums paid into the policy are flexible to amount and timing. Premiums are held in a separate (segregated) account underlying the policy and are invested according to the investment strategy selected. The bank account assets are fully segregated from the assets of the Insurer. The asset manager and custodian bank are selected by the policyholder/investor with approval of the Insurer.
Tax law in most countries allows for tax deferred build-up of gains in a compliant PPLI policy. Under certain circumstances and appropriately structured, the payout may be completely tax-free.
There are requirements in and for specific jurisdictions that must be met by all parties, e.g., investor control rules, adequate diversification of underlying assets. Making competent, expert advice essential. The policyholder generally delegates full control of management of the investments in the separate account to an asset manager selected by the policyholder and appointed by the insurance company.
To take a concrete example:
A 45 y.o, successful entrepreneur, wants:
- Tax optimisation (deferral or tax-free payout)
- Asset protection
- Investment flexibility
- Succession (estate) planning choices
The properly set up, compliant life insurance solution delivers all these benefits.
The entrepreneur takes out a life insurance policy with the insurance company, specifying the beneficiaries of the policy and the insured person. The insurance company opens a segregated investment account with the custodian bank, appoints the asset manager and the entrepreneur pays the funds into the account as in the figure above.
Life insurance solutions carry very material, useful benefits and advantages:
Benefits and Advantages
Tax Planning and Efficiency:
Life insurance policy enjoys full tax deferral during buildup. No tax on income or capital gains on the portfolio during the accumulation period. Compounding allows assets to grow faster than assets subject to U.S. federal income tax on an annual basis. Death benefit payout may be fully tax free.
Legal title (ownership) of assets passes from policyholder to insurance company. Assets underlying policy cannot be attached or accessed by a creditor or other claimant in a legal process.
Inheritance and succession planning:
Effective, low-cost, tax-efficient transfer of wealth from older generation to younger. Legal disputes are rare, it is very difficult to attack an insurance policy.
Investment flexibility and control:
Flexible choice of investments, virtually any bankable asset is possible. The policyholder selects an asset manager and investment strategy. The Insurer may invest in non SEC-registered securities and investments that may not be accessiblefor an individual U.S. investor.
Access to non-U.S. investment funds:
US persons investing directly in non-U.S. investment funds are often subject to adverse tax rules on returns. Non U.S. investment funds can be held in the policy without these tax rules applying.
The policyholder can access the cash value either through early surrender or partial surrender of the policy or loans against the cash value of the policy. There may be tax costs for early withdrawals or loans from the policy.