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Eight Pointers Will Put You On Firm Ground When Looking At Offshore PPVLI

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Private placement variable life insurance is one insurance product that is constantly being discussed at every high-net-worth round-table conference or symposium.

PPVLI is simply variable life insurance offering alternative investment options, such as hedge funds, to high-net-worth clients (those who are considered “accredited investors” and “qualified purchasers” under federal securities laws). PPVLI products are intended to be “placed” (i.e. sold) through offers that are considered “private,” (i.e. not public) hence the term “private placement.”

The oft-cited proposition that one should purchase PPVLI offshore to achieve greater tax savings is largely a myth. There may be legitimate reasons for going offshore for a PPVLI purchase but tax savings is not one of them. For clients who already have established an offshore trust, banking or investment relationship and who wish to access a larger universe of possible investments for the PPVLI separate accountincluding very illiquid investmentsoffshore PPVLI may be worth investigating.

State insurance laws generally require a PPVLI product to maintain a certain minimum level of liquidity. The minimum level of liquidity is access to cash withdrawals at least once per calendar quarter. Most state insurance departments will not approve a PPVLI product unless the product allows withdrawals, surrenders and payment of death benefits to occur at least every calendar quarter. This prevents an onshore insurance company from allowing PPVLI separate account assets to be invested in most private equity funds, hedge funds, real estate or other funds that impose “lock up” periods or use some other mechanism to prevent investors from redeeming their fund investments any more frequently than semi-annually, annually or even bi-annually.

Most offshore jurisdictions do not maintain similar minimum liquidity requirements for PPVLI. So, if the client wishes to access a larger universe of possible investments that may be included in the PPVLI separate account, an offshore purchase may make sense.

However, there are a large number of additional issues that must be investigated and understood prior to the actual purchase of an offshore PPVLI (see chart).

Therefore, any discussion regarding an offshore purchase will require a lot of homework and consultation with legal counsel before proceeding with the purchase of offshore PPVLI.

In recent years, state insurance departments have become increasingly familiar with PPVLI and the liquidity restrictions imposed by alternative investments. In addition, states such as South Dakota have enacted insurance laws that specifically allow for payment of insurance benefits “in-kind” rather than in cash, at the discretion of the insurance carrier, for large premium insurance policies purchased by “accredited investors.”

PPVLI products have been approved for use in all 50 states and are now offered by several leading onshore carriers. For clients who do not have existing offshore trusts, and investment or banking relationships, it may be more appropriate to investigate PPVLI offerings available from established, highly rated onshore insurance companies.

, and advisors should be comfortable that the carrier they are working with has the capacity to fulfill that commitment.

transactions demand the highest degree of service and expertise. They want to do business with a carrier that they know, one that has a long history of policyholder commitment and one they can reasonably expect has the financial strength to endure thro Thomas M. Bounty, J.D., is a managing director with MassMutual Private Client Group. He can be contacted at [email protected]

Reproduced from National Underwriter Edition, April 23, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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