The Tax-Free Wrapper: PPLI & Insurance Alpha
The Tax-Free Wrapper: PPLI & Insurance Alpha
Turning tax-inefficient assets (Hedge Funds, Credit) into tax-exempt wealth using Private Placement Life Insurance (PPLI).
Executive Summary
- The Problem: High-yield assets (Hedge Funds, Private Credit) generate ordinary income taxed at 37%+. This “Tax Drag” kills compounding.
- The Solution (PPLI): PPLI is an institutional-grade insurance wrapper. Assets inside grow tax-free, and can be accessed tax-free via loans.
- Low Friction: Unlike retail insurance with high commissions, PPLI has no commissions and extremely low institutional fees, maximizing cash value.
Investor Control Doctrine
Strict Compliance Required: You cannot “dictate” the trades inside the policy. You must select a third-party investment manager. If you exercise too much control, the IRS will pierce the wrapper (Rev. Rul. 2003-91).
Mechanic: The Wrapper Economics
0%
Tax Rate
No K-1s
Reporting
$2M+
Min Premium
QP Only
Eligibility
Simulation: Hedge Fund Return (Taxable vs. PPLI)
Net Return on $10M Hedge Fund Investment (10% Gross)
| Feature | Retail VUL Insurance | PPLI (Private Placement) |
|---|---|---|
| Commissions | High (Front-loaded) | None / Flat Fee |
| Investments | Generic Mutual Funds | Hedge Funds / Credit / Alts |
| Target User | Mass Affluent | UHNW ($20M+ Net Worth) |
Don’t let taxes dictate your asset allocation. Wrap the inefficient assets, and let the efficient ones run free.”
Essential Resources
INTERNAL
BMT Playbooks