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Senate Committee Calls Private Placement Life Insurance a Tax Shelter for Ultra-Wealthy

S.J. Steinhardt
Published Date:
Feb 22, 2024


The private placement life insurance (PPLI) industry is a $40 billion “tax dodge” for the ultra-wealthy, a report by the Democratic staff of the Senate Committee on Finance alleged.

These policies are held by 3,061 Americans, and the staff report called it “a niche financial product for the ultra-wealthy that is not available to middle-class Americans” and that is “actively promoted to wealthy investors as a means to eliminate income, gift and estate taxes.”

The staff investigators obtained copies of pitch decks from major PPLI providers promoting their products to ultra-high-net-worth people, telling them how to make tax-free investments in hedge and private equity funds.

"Across the industry, PPLI providers actively pitched clients on using PPLI policies as a tax-advantaged wrapper for the purpose of investing in a wide range of asset classes and bypassing taxes on investment gains and the transfer of wealth to their heirs," said the report.

PPLIs policies differ from traditional insurance products in two ways, the report explained. Unlike traditional insurance products, PPLI policies typically require minimum premium commitments of $1 to $2 million or greater (not including fees and other administrative costs). PPLI products can be issued only to individuals who satisfy the definitions of an accredited investor (usually someone with a net worth of over $1 million or an individual income of $200,000 in each of the two most recent years, or $300,000 per household) or a qualified purchaser (someone who, individually or through a company/trust, owns at least $5 million in investments) under federal securities laws. By statute, PPLI policies are only available to high-income or high-net worth persons.

The investigation found that PPLI represents just 0.003 percent of all individual life insurance policies in force in the United States, according to a statement by Sen. Ron Wyden (R-(Ore.), the committee chair.

“I’m a strong defender of life insurance as a source of financial security for hardworking American families and retirees, but that’s not what’s going on with these tax-dodging private placement policies that are available only to the ultra-wealth," Wyden said in the statement. "When you subject these policies to even the slightest bit of scrutiny, it’s clear that this is just a tax shelter for the investments of the mega-rich masquerading as life insurance. None of this is available to middle-class Americans. As is often the case with our tax code and the ultra-wealthy, the scandal here is what’s legal. The companies weren’t even trying to hide the fact that their PPLI policies were tax dodges for the very top—that’s precisely how they were promoted. It’s obvious that this is an abuse of the rules that are intended to protect typical American families, so Congress must change the law to put a stop to it.”

The committee noted that the seven companies that sell the most PPLI policies in the country all cooperated with its investigation. Collectively, the wealthy participants have invested $9 billion in PPLI plans, which will be worth more than four times as much to their heirs upon their deaths, The Washington Post reported.

One company, Prudential, distributed $27 million in payouts as of the end of 2022. Prudential said that its average PPLI client’s net worth is more than $100 million.

In an email to the Post, a Prudential spokeswoman said its PPLI plans represent about 1 percent of its insurance business, and that the company follows the law. “These federal and state rules provide a robust regulatory framework to, among other things, limit investment orientation and keep financial protection as the principal focus of the product,” she said.

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