Bespoke PrivateRisk™ Policies: The Ultimate Ownership Structure

Bradley A. Barros discusses the financial benefits of PPLI and the various benefits it offers on a consumer’s portfolio.

The Ultimate Ownership Structure for High Net-Worth Families and Individuals: Bespoke PrivateRisk™ Policies

Wealth holders own permanent life insurance for a variety of reasons. The benefits typically include substantial tax benefits and asset protection.

But when wealth holders are asked what they dislike about life insurance they uniformly respond with a series of concerns:

  • They are shocked to learn that the commissions can exceed 125% of the first -year premium; 
  • They are frustrated with the limitations to invest in a handful of (often expense-laden) funds offered by the carrier; 
  • They feel taken advantage of by hidden internal fees and expenses that erode their policy cash value – the industry slang is “death by a thousand cuts”;
  • Older insureds feel robbed – and they are – when the internal Cost of Insurance (COI) for some policies unexpectedly skyrockets to unaffordable levels that were not properly disclosed at the time of the sale.

Time and time again we have seen policyholders left holding a bag of empty promises after paying premiums for decades.

We understand and share these frustrations. If you want to protect your family and better protect your business holdings and other investments, now is a good time to ask yourself the following question:

What if there were a way that you could enjoy all of the benefits and advantages of life insurance – but without the painful negatives that are commonly associated with it?

The answer to this question is that there is a better way. Bespoke Private Placement Life Insurance™.

Bespoke Private Placement Life Insurance

A Bespoke Private Risk policy is a variable life insurance policy wherein the menu of investments is not limited by the issuing life insurance company’s portfolio, thereby broadening the choices of cash value investments to an almost unlimited scope.

Private Placement Life Insurance (PPLI, or “PrivateRisk Policies™”) is an advanced form of life insurance that can provide substantial advantages to policy holders above and beyond the life insurance policies that are sold by agents to the general public. Qualifying Private Risk policies are treated by the IRS identically to retail life insurance policies. The insurance benefits, application of tax favored status, and governing rules that apply to retail life insurance is also afforded to traditional life Private Risk policies.

As background, “a Private Placement Life Insurance (PPLI) policy is a type of variable life insurance policy. One of the chief tax benefits of a cash value life insurance policy is that the policy’s cash value accumulates free of income taxes.

The types of investments available in a retail or mass marketed variable life policy may include stocks, bonds, mutual funds, and alternative investments. However, the menu of available investments is nevertheless limited by the offerings of the issuing life insurance company. A Bespoke Private Risk policy is a variable life insurance policy wherein the menu of investments is not limited by the issuing life insurance company’s portfolio, thereby broadening the choices of cash value investments to an almost unlimited scope.

As an overview, curated policies that are designed using “best-practices” are often designed in the following manner:

Structure

An Insurance Dedicated Fund (“IDF”) holds the majority of the policy investment assets. The IDF is a preferred vehicle to hold assets within a policy structure. Separately Managed Accounts (“SMA”), properly administered, are permissible.

The creation of the IDF and the manager you choose is client need driven. Based upon performance and consultation with the insurance carrier. Flexibility is built into the policy and the investment strategy, allowing changes when desired. The IDF or SMA are designed to achieve a diversified portfolio.

The portfolio will become more diversified over time as earned dividends are re-invested without deductions for taxes.

In addition, the manager can sell appreciated assets without capital gains exposure. This would be done confidentially due to the policy asset protection. 

The policy structure is designed to both protect assets and maintain anonymity.


Investing Through a Customized Private Placement Policy

Curated PPLI policies, and the contract structure and terms, are customized to suit the client, their needs, and their situation.
These policies can hold traditional bankable assets, as well as a variety of business interests in nearly any type of industry, commercial and residential investment real estate, intellectual property rights, music catalogues, artwork, oil and gas holdings, and other holdings as part of the Cash Value.

The policy Cash Value can be structured to grow tax advantaged, accessed tax-free through withdrawals and policy loans that do not need to be repaid during life, and tax-free death benefits.

Policy holders may suggest their own trusted investment advisors to oversee and manage the policy cash value holdings, subject to communication with the PPLI insurance carrier, and investments may be held in custody at the selected investment manager’s firm.

There is complete transparency of costs on a pre-arranged term sheet. There are generally no commissions, only fully disclosed management fees charged by the PPLI Insurer, and the referring advisor is paid from the fee collected by the insurer. The policies can be owned by trusts and other structures that are regulated by state law and provide valuable privacy and protection to policy owners and beneficiaries.
The policy Death Benefit may be acquired at a much-lower net cost, versus mass-marketed and retail insurance policies. Private Risk policies may distribute life insurance proceeds “in-kind”. In-kind assets can include the actual stock or ownership interests in private equity and real estate.

Where Can You Find Customized Private Placement Policies?

It is critical to work with wealth advisors who hold a deep acumen and long-term experience in designing customized private placement structures. It’s also important to work with a fiduciary (who is legally obligated to place your interests first). There are myriads of fiduciary firms and many of them are outstanding.

Read the full story here: https://csq.com/2017/10/bespoke-privaterisk-policies-the-ultimate-ownership-structure-for-high-net-worth-families-and-individuals/#.X4ctQJNKjjB

The Tax-Deductible Juice May Not Be Worth the Squeeze

The myth doesn’t always live up to the reality.

Some advisors say that, given enough time, a dollar deducted is like a dollar saved. But so-called truisms borne of the wealth management industry are often like magic tricks: the audience only sees what the magician fashions. So when the founder of a large surgical center retained us to examine a proposed micro-captive insurance company (MC) and compare it with a pension plan, we were more than happy to examine the magician’s box of tricks in order to divulge his secrets. 

Meet Dr. Smith (not our client’s real name). He is a veritable superstar. At only 38 years old he earns about $4 million a year from his medical practice and surgical center. While his medical practice had a large number of self-insured risks, the doctor appeared motivated by what he believed would be the long-term tax savings promised by the captive manager. When all regulatory and IRS standards are met, premiums paid into a captive may be deductible. Underwriting profits inside an MC are tax deferred, but all realized investment gains are taxable. If the MC has reserves that remain after paying claims to the doctor’s business (and claims paid to third parties who would participate with the MC in a compliant risk pool), the captive may be liquidated on a capital-gains basis, where remaining untaxed underwriting profits and previously taxed investment gains will be taxed again.

Read the full story here: https://www.wealthmanagement.com/high-net-worth/tax-deductible-juice-may-not-be-worth-squeeze

Tinted Windows: Seeking Transparency in the Wealth Industry

The above-the-fold headlines touting, “Consumers are making better choices,” have yet to be published.

The DOL push created substantial challenges in communicating the new rules.

Worse still, the regulatory shift from the ERISA rules born in 1974 now extend a fiduciary duty to advisors relative to IRAs that can lead to unbridled confusion and abuse.

Consider the two hats worn by a financial advisor. An advisor does not have a fiduciary duty when he or she communicates with or engages a client relative to assets outside of retirement plans and IRAs. Envision a conversation between an advisor and a couple planning for retirement. The conversation shifts from a discussion about the couple’s holdings in an IRA to their individual investment in a mutual fund account.

Read the full story here: https://www.wealthmanagement.com/high-net-worth/tinted-windows-seeking-transparency-and-efficiency-wealth-industry