In last month’s article on planning for 2026, we explained why Private Placement Life Insurance (PPLI) is getting more attention from professional advisors and affluent families.
Since then, we’ve received more questions about PPLI than any other topic we’ve written about this year.
Attorneys want to know when it fits into estate plans. CPAs want clarity on the tax mechanics. Wealth managers want to understand how it’s actually implemented. And nearly everyone asks the same underlying question:
When does PPLI make sense and when should we walk away?
This article is a follow-up to that introduction. Not a rehash of what PPLI is, but a practical framework for evaluating when it belongs in a plan, when it doesn’t, and what separates successful implementations from expensive disappointments.
What PPLI Actually Is (and Why That Matters)
At its core, Private Placement Life Insurance is permanent life insurance designed for institutionally managed investing inside a policy structure.
The mechanics are familiar. Premiums fund the policy, cash value grows inside it, and a death benefit is paid to beneficiaries. What’s different is who PPLI is built for and how the assets inside the policy are managed.
PPLI is offered under private placement rules rather than retail distribution and paired with institutional-style investment options, often including alternatives, within a separate account platform that has defined governance.
In practical terms, PPLI is not “the strategy.” The strategy is tax-efficient asset location. The insurance wrapper is the tool used to solve a specific problem.
The Real Problem PPLI Is Designed to Solve: Tax Drag
Consider a family with $15 million in taxable investment accounts earning an average annual return of 8%.
After capital gains taxes, dividend taxes, and state tax overlays, their net-of-tax return may fall closer to 5.8%.
Over 20 years, that annual tax drag can cost the family approximately $8.3 million in lost compounding.
For families at this level, the issue is rarely gross returns. It’s net-of-tax returns. And over long time horizons, ongoing taxation often becomes one of the largest, and least examined, line items on the balance sheet.
PPLI is designed to address this specific issue. When structured properly, investments inside a life insurance policy grow tax-deferred, and distributions can be structured to minimize or eliminate income tax.
We’ve worked with families where the present value of avoided taxes over 10–15 years exceeded several million dollars, even after accounting for insurance costs and policy fees. These figures are illustrative, but the math is real.
Still, none of this works unless the planning justifies the structure.
When PPLI Makes Sense
PPLI tends to work well when most of the following conditions are present:
The client has significant liquid wealth. This is not a stretch strategy. Premiums are meaningful, often $1 million or more annually, and the client must have excess liquidity beyond what’s committed to the policy.
There is a long time horizon. PPLI improves with time. For horizons shorter than seven to ten years, frictional costs often overwhelm the benefit. For 15+ year horizons, the math becomes far more compelling.
The client has persistent tax drag. The best candidates are families with taxable portfolios that generate ordinary income, short-term gains, or regular distributions. If the portfolio is already tax-efficient and low-turnover, the incremental benefit may be limited.
The client can tolerate process and governance. PPLI is not “set it and forget it.” Underwriting, funding schedules, documentation, investment oversight, and regular reviews are all part of the deal. Clients who resist structure are usually poor fits.
The advisory team is coordinated. The strongest outcomes occur when legal, tax, investment, and insurance advisors are aligned from the beginning. If coordination is an afterthought, implementation risk rises quickly.
When PPLI Is Not a Fit
We’ve declined PPLI cases that looked attractive on paper but failed under scrutiny. The most common reasons:
Liquidity is tight or premiums create stress. If funding the policy requires borrowing or compromises flexibility, this is the wrong tool.
The client needs near-term access to capital. Early surrender charges and tax considerations make PPLI risky when liquidity needs are uncertain within the first five to seven years.
The case is driven by tax savings alone. PPLI must be structured as life insurance first, with tax benefits as a byproduct. Structures driven purely by tax avoidance invite scrutiny and increase downside risk.
The client wants full investment control. PPLI has guardrails. Clients who want to trade actively or treat the policy like a personal brokerage account risk undermining the tax treatment entirely.
No one will own ongoing management. Most PPLI failures aren’t bad ideas, they’re poorly governed ones. If no advisor is clearly responsible for monitoring funding, investments, and compliance, the structure becomes fragile.
A Hypothetical Example
Consider a family that owns a closely held manufacturing business valued at approximately $40 million.
Outside the business, the family holds roughly $18 million in taxable investment accounts managed by their wealth advisor. The portfolio is diversified and performing well, but it generates a meaningful amount of ordinary income, short-term gains, and ongoing turnover.
After reviewing several years of returns, the family’s CPA estimates that federal and state taxes on investment income and gains average approximately $650,000 per year. Over a projected 15-year period, assuming conservative growth, cumulative taxes could exceed $12 million.
The family has no near-term liquidity needs, maintains a strong balance sheet, and is planning with a multi-decade horizon. In this scenario, the advisory team begins evaluating whether PPLI could improve net-of-tax outcomes while also addressing estate planning objectives.
Under one possible structure, the family funds a PPLI policy with $5 million in annual premiums. Investments inside the policy are managed by the family’s existing wealth advisor through a separately managed account, subject to appropriate diversification and governance requirements.
Over a 15-year period, the projected present-value tax savings from deferring and mitigating ongoing taxation could exceed $6 million, even after accounting for insurance costs and policy fees. In addition, the policy’s death benefit could provide liquidity for future estate taxes and help equalize inheritances between children who will, and will not, succeed the family business.
This type of outcome is not guaranteed, and results depend heavily on assumptions, time horizon, implementation quality, and ongoing management. But it illustrates the type of planning problem PPLI is designed to address when the facts support the structure.
Why Implementation Quality Matters More Than Design
Two PPLI cases can look identical on paper and perform very differently in practice.
The difference is almost always implementation.
Successful PPLI requires:
- Proper underwriting and policy design
- Disciplined funding schedules
- Thoughtful carrier and platform selection
- Clean investment governance
- Coordinated legal, tax, and insurance documentation
- Ongoing policy reviews
When any of these are treated as secondary, small issues compound into expensive disappointments. We’ve seen policies where governance drifted, funding fell behind, or loan management became reactive, all avoidable with proper oversight.
Questions Advisors Should Ask Before Moving Forward
If you’re evaluating PPLI for a client, start here:
What problem is this solving specifically?
“Tax efficiency” isn’t enough. Quantify the tax drag and compare it to the cost and complexity of the structure.
What is the client’s time horizon and liquidity plan?
If funds may be needed within seven years, caution is warranted. Long horizons change the equation.
Who is quarterbacking implementation and ongoing management?
If ownership is unclear, that’s a red flag.
What governance exists around investments and client behavior?
If the structure assumes hands-off behavior from a historically hands-on client, address that mismatch upfront.
Are the costs and tradeoffs clearly documented?
If the client can’t explain what they’re giving up to get the benefit, they shouldn’t proceed.
A Clear Conclusion
PPLI is neither magic nor malpractice.
It is a specialized planning tool that can be powerful for the right families, those with taxable wealth, long horizons, and disciplined advisory teams.
It is also easy to misuse. Too complex for the client. Too expensive for the benefit. Or too loosely governed to be safe.
Knowing the difference is the work.
For the right cases, PPLI can be one of the most effective tools in advanced planning. For the wrong ones, it’s an avoidable mistake. Sophisticated planning stays credible when judgment comes before product.
If you’d like to discuss whether PPLI may be appropriate for a client, or how it fits into a broader estate or succession plan, we’re always open to that conversation.
