Let’s be honest — life insurance isn’t typically considered a sophisticated financial strategy.
Sure, life insurance can be a useful risk management tool. But it’s also an area notorious for high-pressure sales tactics and unscrupulous brokers.
This reputation isn’t wholly unjustified — but it’s also not the full story.
As it turns out, life insurance can be an enormously powerful investing vehicle.
In fact, strategies like Private Placement Life Insurance (PPLI) are arguably one of the best-kept secrets of the ultra-wealthy, facilitating tax-free gains on lucrative strategies like venture capital and private equity.
“[It’s] an ultra-niche financial product, exploited by the super-wealthy to avoid taxes.”
– A Democratic US Senator in a 2024 report
Today, I’m going to show you why PPLI can be so powerful — and how you might be able to access it through Arta Finance.
Arta is a digital wealth platform bringing the type of financial strategies used by billionaires to a much wider pool of investors.
Previously, we’ve explored Arta’s structured products offering, and reviewed their platform as a whole.
But today’s issue is all about PPLI and investing through life insurance.
I’ll explain:
- How the cash value of permanent life insurance opens up investment possibilities,
- The different forms of tax-advantaged life insurance investing — and who they might be right for,
- Why life insurance can be an ideal place to house tax-inefficient alternative strategies like private equity and hedge funds,
- And how PPLI can potentially offer tax-free enjoyment of investment wealth — and even tax-free distribution to your heirs.
Let’s go 👇
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Note: A lot of the tax discussion today is US-specific, and the rules may be different in your location. As always, nothing here is tax, legal, or financial advice! This issue is sponsored by our friends at Arta, with research & due diligence performed by Brian Flaherty and the Alts team. As always, we think you’ll find it informative and fair.
Table of Contents
How to invest with life insurance
In an article last year, we discussed some of the basics of life insurance policies in the context of life settlement investing.
Here’s a quick recap on how these contracts work:
- The policyholder (that’s you) pays regular premiums on the policy
- The policy remains in force for either a set period of time (term life insurance) or for the policyholder’s entire life (permanent),
- Beneficiaries (that’s your family) receive a death benefit if the policyholder dies within the coverage period. (Sorry!)
But there’s another aspect of insurance that we didn’t talk about: the cash value of a policy.
Permanent life insurance contracts often come with a cash value attached. Think of it like an investment account bolted on to the insurance contract.
For ‘cash value life insurance,’ a portion of each premium payment goes toward funding this investment account — with the rest going toward coverage and fees.
What do cash value accounts invest in?
While the cash value essentially works like an investment account, that doesn’t mean you can buy whatever assets you’d like.
There are different types of retail life insurance contracts. Each type focuses on a different class of assets:
- Whole life policies are the least aggressive, investing in assets like Treasuries and other ultra-safe bonds. This allows for a fixed, guaranteed rate on the cash value.
- On the other end of the spectrum, variable universal life policies offer the closest thing to a true investment account. The cash value can be invested in a variety of sub-accounts, usually including both stock and bond funds.
In between these two, there are different options with distinct risk-reward characteristics.
No matter what type of contract you select, the cash value will grow tax-free as long as it remains in the policy — similar to an IRA.
Traditionally, the biggest benefits of a life insurance policy accrue after the policyholder passes away (namely, the death benefit to beneficiaries).
But we can think of the cash value as providing a living benefit to the policyholder. You can utilize this cash value by:
- Withdrawing funds from the cash value directly (although you’ll usually owe income taxes on any gains).
- Or taking out a flexible, low-interest loan against the cash value — which you can either 1) eventually repay or 2) net against the death benefit when you pass.
This last one is the most intriguing option.
Remember, borrowing is generally not taxable! When combined with the cash value’s tax-free growth, that opens up some intriguing possibilities to (legally) avoid taxes entirely.
Keep that in mind — in a moment, I’ll show you why it’s so important.
Who is life insurance investing right for?
At this point, I want to make something clear: In many situations, life insurance investing doesn’t make much sense.
The cost of insurance, commissions, and the difficulty of accessing funds in retirement means that cash value life insurance products aren’t always a great way to invest.
Instead, term life insurance plus standard tax-advantaged investing is usually a better bet.
But this isn’t universally true.
For example, if you’re a high earner with kids in a high-tax state, the tax advantages of a variable universal life policy can potentially be quite beneficial.
And in a few specific cases, investors can even access a particularly lucrative form of life insurance — Private Placement Life Insurance.
Private Placement Life Insurance with Arta
As the name suggests, PPLI is not something you can access through a retail insurance broker.
This is a highly customized structure tailored to individual goals.
To access PPLI, you’ll have to work with an advisor that offers sophisticated wealth management capabilities — like Arta Finance.
The main thing that separates PPLI from retail life insurance is that it’s explicitly designed as an investment vehicle — it just uses life insurance as a wrapper.
Here’s how it works:
- Unlike a traditional insurance policy, PPLI is structured with high premiums paid over a short period of time, rather than low premiums at monthly intervals.
- The vast majority of these premiums go toward funding the contract’s cash value — the cost of coverage and fees are minimized.
- This cash value is invested in private market alternative investments like private equity, venture capital, or hedge funds.
- The policy offers low or zero-interest loans against the cash value (up to 90% in the case of Arta).
Although PPLI is technically a life insurance contract, the actual insurance component is kept small while still complying with IRS rules.
While individual situations vary, the total annual costs embedded in PPLI plans, including the cost of insurance, is typically ~1% per year.
That’s a stark difference from retail life insurance products, which often come with inefficient investment exposure due to the high cost of insurance and heaped upfront commissions.
There’s one key benefit that can make all this structuring worthwhile: tax-advantaged investing.
What are the tax advantages of PPLI?
To analyze the potential tax benefits of PPLI, it helps to think in terms of three areas: contributions, growth, and distributions.
1) Contributions
The cash paid into a PPLI is technically considered a ‘premium.’ But it’s more helpful to think of it as a post-tax contribution to a retirement account.
This is functionally similar to a Roth IRA. The key difference, however, is that there are no contribution limits to a PPLI.
You can contribute as much as you’d like to this account — you just need to structure it properly beforehand.
2) Growth
PPLI contributions can be used to invest in both private and public assets.
Since investments like private equity or hedge funds are generally not very tax-efficient, however, it’s often better to focus on private assets in tax-advantaged accounts.
Like an IRA or 401(k), PPLI offers tax-free growth on investments — making them an ideal place to house private market assets.
And since you can sell assets without triggering capital gains, PPLI features greater allocation flexibility than taxable accounts.
PPLI also offers greater tax-efficiency in terms of investment management fees, which are paid on a pre-tax basis directly by the insurance company.
3) Distributions
Finally, when it comes to accessing the money, you can generally distribute PPLI funds tax-free by borrowing against the assets.
Now, this isn’t technically a distribution. The money doesn’t actually leave your account, although assets do need to be liquidated to support the loan (this is not a margin loan — an important distinction).
The fact that this isn’t a distribution is what makes it so tax-efficient. Here’s why:
- Borrowing is generally not a taxable event as long as it’s properly structured.
- PPLI policies are specifically designed to ensure that the death benefit is always greater than the cash value.
- That means when you eventually pass away decades later, any loans against the cash value can be netted directly against the death benefit — no taxes necessary.
And unlike 401(k)s or IRAs, there are no penalties, minimums, or age limitations on borrowing.
While the interest rate on policy loans varies by insurer, it’s often rock-bottom. Prudential, for instance, offers loans as low as 5 basis points.
And don’t forget — any death benefit left over after loans are settled will be distributed to beneficiaries.
This death benefit is generally income tax-free. And if the PPLI policy is owned by an Irrevocable Life Insurance Trust, it can even be estate tax-free as well.
As a result, PPLI can potentially be a powerful tool to both avoid taxes in your own lifetime and leave a tax-efficient legacy to your heirs.
Who is PPLI right for?
These advantages are attractive. However, PPLI is not suitable for everyone.
The most fundamental reason why is that PPLI policies are generally only available to Qualified Purchasers (QPs).
QPs are like super-accredited investors. You need at least $5 million in investments (excluding primary residence) to qualify.
This isn’t just because PPLI plans typically require at least $1 million in total premiums (usually paid over 5-7 years). There are also fundamental legal restrictions around who can invest in such a complex structure.
With that said, other types of variable universal life insurance that share some of PPLI’s tax advantages are available to non-QPs.
Arta can help you explore these options and determine if one might be a good fit for your financial goals.
Even if you’re a QP, however, investing in a PPLI structure only makes sense as long as you also check a few other boxes:
- Already maxing out tax-advantaged accounts. It’s generally more straightforward to access tax benefits through accounts like 401(k)s and IRAs, so you’ll want to maximize these contributions first.
- Facing high marginal tax rates. The benefits of tax-advantaged investing are most significant to those with marginal tax rates above 30%. High earners in New York or California can even face marginal rates of 50% or more.
- Investing in tax-inefficient assets. If you’re only investing in tax-efficient assets like long-term ETF holdings, PPLI may not offer much benefit. That’s why PPLI plans focus on tax-inefficient alternatives.
- In generally good health. While the insurance component of PPLI is small, it’s still a factor. Those in generally good health will have the lowest possible insurance rates and thus can achieve the maximum investment exposure through premiums.
But these factors really just scratch the surface. To truly decide whether a PPLI is right for you, you’ll want to evaluate your situation directly with a trusted advisor — like Arta.
Investing in PPLI with Arta
Unlike most of the industry, Arta doesn’t compensate their advisors through commissions.
And as we’ve discussed previously, Arta takes a holistic wealth management approach. Insurance is just a small part of what they do.
These factors mean the Arta team is uniquely positioned to help evaluate whether PPLI makes sense for you — they’re not incentivized to push products for the sake of making a sale.
If PPLI does make sense in your situation, however, you can set up your personalized plan directly through Arta. Here’s a step by step look at how it works:
- Determine the appropriate size & contract depending on the policies on offer. Arta compares policies from 50+ reputable insurers to help match you with the right one.
- Undergo medical underwriting to determine your insurance costs.
- Select the owner of the policy — often an individual, but occasionally a trust (Arta can integrate this decision with an overall estate plan).
- Finally, select the investments in your PPLI plan.
Arta offers two legally compliant pathways to manage PPLI investments, each of which comes with distinct minimums:
- Standard PPLI features investments in a dedicated insurance fund operated by leading alternative asset managers, such as Apollo, Ares, and Golub ($1M minimum in total premiums).
- And Managed PPLI, which is an open-architecture format that allows for a customized portfolio across asset classes in a dedicated account ($3M minimum in total premiums). Due to the IRS investor control doctrine, policyholders are limited in their ability to directly manage these assets, so investors rely upon an investment manager like Arta.
Interested in learning more about whether PPLI can help you access tax-advantaged growth?
Arta is running educational sessions both online and in-person in partnership with leading private fund managers. These sessions are in April and May — sign up now so you don’t miss your chance to register!
Confirm your interest below and a member of the Arta team will reach out soon.
Closing thoughts
For the time being, PPLI remains a fairly exclusive financial strategy. Only about 1 in 50 households in the US are Qualified Purchasers.
But I don’t expect this exclusivity to last forever.
In years past, PPLI was quite literally only available to billionaires and ultra-wealthy family offices.
Over time, however, strategies like this have gradually become available to more investors — in large part because companies like Arta have deliberately fostered increased accessibility.
Even if you don’t qualify for PPLI today, that could change in the future as investment minimums and accreditation requirements evolve.
Finally, it’s worth mentioning that the PPLI strategy remains politically and legally controversial.
In a report early last year, a Democratic US Senator lambasted PPLI:
“[It’s] an ultra-niche financial product” exploited by the super-wealthy to avoid taxes.
Previously, a law professor also argued that PPLI is “too good to be true” and based on overly lenient IRS rulings.
But until the IRS updates its guidance or Congress passes new legislation, PPLI is here to stay.
And frankly, with the current political atmosphere in the United States, it seems unlikely for either of these things to happen anytime soon.
Still, these risks make it essential to work with an experienced, compliance-focused advisor to implement a PPLI strategy. This is not an area for a DIY approach.
That’s it for today.
Come chat with me in the Alts Community.
See you next time,
Brian
Disclosures from Alts
- This issue was written by Brian Flaherty and edited by Stefan von Imhof
- Arta was able to review an early draft of this article. Brian and Stefan made final editorial decisions.
- Neither the authors nor Altea holds shares or direct interest in Arta Finance.
This issue is a sponsored deep dive, meaning Alts has been paid to write an independent analysis of Arta PPLI. Artahas agreed to offer a deep look at its business, offerings, and operations. Arta is also a sponsor of Alts, but our research is neutral and unbiased. This should not be considered financial, legal, tax, or investment advice, but rather an independent analysis to help readers make their own investment decisions. All opinions expressed here are ours, and ours alone. We hope you find it informative and fair.
Disclosures from Arta
This article is sponsored by Arta Finance Inc. Investment advisory services provided to Arta clients by Arta Finance Wealth Management LLC, an SEC registered investment adviser. Insurance brokering services provided to Arta clients by Arta Finance Insurance LLC. Alts.co is not a client of Arta and has been provided cash compensation for the endorsement. The opinions expressed are based on the author’s knowledge of Arta’s services and are not indicative of future results. This article is for informational purposes only and should not be considered investment advice or a recommendation to buy or sell any particular security.
Tax-free distributions may not be available for all insureds in all situations. Please discuss with your tax advisor to see if a PPLI product is right for your individual situation.
