Private Placement Life Insurance


Private Placement Life Insurance (PPLI), Variable Universal Life (VUL) insurance, Unit Linked Life Insurance, Deferred Variable Annuities (DVAs) have become very popular over the last 10 years. With good reason, insurance solutions, properly implemented are extraordinarily efficient, effective wealth planning tools.

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A unit linked policy is defined as a variable endowment policy where the underlying investments can be determined by the Client and separately managed by an asset manager.

The value of the policy generally follows the increases and decreases on an underlying portfolio of investments.

Unit linked life insurance comes in three main flavours: 

With the DVA and VUL, the cash value is dependent on or linked  to the value of the securities underlying or “wrapped” in the policy. It is possible to wrap virtually any bankable asset and a very variety of non-bankable assets. In substance it is usually a segregated managed account "wrapped" in an insurance policy, with the insurance structure conferring certain benefits to the investor.

The Frozen Cash Value (FCV) and it’s cousin the Zero Cash Value (ZCV) policies have relatively specific applications and is generally for UHNW families, please get in touch with us if you have questions related to FCV or ZCV policies.

The policy that is most widely used is the variable universal life (VUL) insurance policy. The value of the policy follows the increase and decrease in the value of the investments underlying the policy. I.e., the policy cash surrender value as well as the payout in the event of death vary according to the value of the underlying assets. For the VUL and FCV, there is usually a risk component (biometric risk) to the policy, typically ranging from 1% to 5%. The policyholder may choose periodically (e.g., annually) the investment strategy (conservative, balanced, aggressive, etc). The policyholder generally nominates the asset manager of the underlying assets.  A DVA is purchased with a defined maturity or accumulation period, whereas VUL tends to be whole life or have a long accumulation period. 

Who is involved and how does it work

The parties to a PPLI contract is well understood and the same as traditional life insurance. The figure below illustrates the parties involved to the policy. 

The insurance company issues the policy, the policyholder takes out the policy on the life of the insured person and the beneficiary (often multiple) receive a payout in the event of death (or other insured event). Nothing new here - Insurance 101. 

PPLI differs with the segregation of assets underlying the policy, the involvement of an independent asset manager and a custodian bank. Assets are transferred to a custodian bank, a depot account for the securities is set up, an asset manager is nominated who manages the assets in the account according to a predefined strategy chosen by the policyholder. 

In Switzerland, a life insurance policy generally directly involves four parties: 

  1. The Insurance Company: which issues the policy and provides coverage to the policyholder in return for payment of the insurance premium, which may be a lump sum or a series of regular payments.

  2. The Policyholder: who takes out the policy enters into a contract with the insurer and receives coverage for him/herself and/or other persons (beneficiaries). A legal entity such as a company or foundation, but also a trust, can be the policyholder. As the contracting partner, the policyholder owes the insurance premiums that need to be paid to the insurer in return for providing insurance coverage.

  3. The Custodian Bank where the assets are deposited for safekeeping and management

  4. The Asset Manager who manages the assets – receives a Power of Attorney from the Insurance Company.

Also indirectly: 

  1. The Insured Person: - whose life the insurance policy covers. This can, but need not be, the same person as the policyholder, but it must be a natural person.

  2. The Beneficiary(s): – who receive payments from the policy on the death of insured person or occurrence of the insured event. The beneficiary(s) are those persons designated by the policyholder to receive the specified capital from the insurer at either a specified date in the future (DVA) or in the case of the insured persons death - the insured event (VUL). Also, the beneficiary can be a legal entity or a trust and must not necessarily be a natural person.

The figure below shows the basic structure.

Figure 2: Participants to a policy - How does unit linked life insurance work?

A further advantage is the separation of duties. Assets are: 

  • Controlled by the Policyholder
  • Owned by the Insurance Company
  • Located at the Custodian Bank
  • Managed by the Asset Manager

There is full separation of control, ownership, management and location of the assets. This can confer certain additional benefits, eg., sucession planning. Depending on jurisdiction, the policyholder can retain anything from zero to full control of the underlying assets. In most cases, the policyholder can continue to maintain some level of direction. 

The benefits and advantages of life insurance solutions

Life insurance has become virtually ubiquitous in wealth planning. It is flexible, can be adapted to a wide range of purposes, enjoys very favourable tax treatment in most if not all jurisdictions and is virtually universally recognised. Life insurance can be used to preserve and increase wealth as well as pass it on to the next generation in a very tax-efficient manner.

Let’s take the benefits in turn  

Estate, inheritance and succession planning

Life insurance can enable the tax-efficient transfer of wealth from the older generation to the younger without the need for estate executors. It can under certain circumstances bypass forced heirship laws by removing the assets from the policyholders estate (the assets become the property of the insurer), though this depends on jurisdiction. Furthermore, legal disputes are rarer, it is exceedingly difficult to attack a life insurance policy, particularly a Swiss policy. Done properly it can be very cost-efficient.  

Circumvention of forced heirship laws is possible in some jurisdictions as the policy is not included in the estate. For a European citizen with US Assets, this means no estate tax payable on US situs asset on the death of the insured person.  For a US person, a trust owned life insurance policy can eliminate probate, both simplifying the process and saving on associated costs.  As anyone who has had to go through a probate process will know, the costs can be considerable, in time, money and nerves. This alone can make a good insurance strategy worth its weight in gold. Furthermore insurance solutions can substantially reduce the impact of estate tax up to complete circumvention.  

Estate planning – US example using irrevocable insurance trust

Transfer of assets to the next generation on the death of either policyholder or insured person can be greatly simplified. Because at the time of death of the policyholder, the assets contained within the policy do not form part of the estate, those assets are not subject to forced heirship laws. This alone makes insurance a particularly elegant solution for people wishing to arrange their affairs. In particular those wishing to define clearly and privately the “Who gets What?” question. One of the big problems in succession is agreeing on “What did Dad say?” and “What did Dad want?” after the fact when Dad is no longer around. Using insurance, Dad can define exactly what he wants before he goes. Furthermore, Dad can define it privately and confidentially.  Beneficiaries can be children from 1st, 2nd (3rd…) marriage or children out of wedlock who might otherwise have been excluded. Benefits to wife (wives…), girlfriend(s), nieces, nephews, foundations, trusts, limited liability companies can all be contractually defined and most importantly – enforceable in a court of law. The possibilities are very wide. The enormous flexibility of insurance makes us real fans of insurance – when properly planned and set up. Moreover, participants are bound by bank and insurance secrecy and may not give out any information on a policyholder whatsoever. In Switzerland, Liechtenstein, Luxembourg, the Bahamas, Bermuda, the Cayman islands, in fact just about anywhere these products are professionally issued, the insurance company is prohibited by law from disclosing any information whatsoever to anyone, including governmental authorities. They may not even confirm if a particular person has a policy or not. Even the policyholder is unable to direct disclosure to 3rd parties. Should the policyholder himself request the insurance company to divulge his ownership of a policy to a 3rd party, the insurance company must refuse this request. This can be particularly useful in case of duress. 

Investment flexibility – investment direction

The policy holder has a very flexible choice of investments, virtually any bankable asset (and an astonishing range of non-bankable assets) can be “wrapped”. Essentially:

  • The policyholder selects a broad investment strategy
  • Asset manager has a discretionary mandate to manage the assets
  • The asset manager is usually designated by policyholder but actually hired by the insurer
  • A "Chinese Wall" to prevent direct communication between policyholder and investment manager is typically contractually agreed

Tremendous flexibility in investment choice

Insurance laws generally stipulate that contracts in which the policyholder bears the investment risk, the insurance company can in principle make use of any investment for which the policy holder is willing to accept the risk. The policyholder thus participates directly in the development of the investment. The insurance carrier sets up a depot account with the custodian bank for each individual policy, allowing individual assets to be assigned directly to individual policies. The policyholder can determine the investment strategy, designate the asset manager to implement the strategy. The asset manager implements the desired investment strategy in the account, the policyholders wishes may range from:

  • A conservative fixed income portfolio
  • 100% listed equity
  • A private equity portfolio
  • Hedge funds
  • Structured products
  • Alternative investments
  • Real estate

and virtually any combination of the above. 

In general the policyholder is prohibited from making investment decisions himself, he may only define strategy and designate the asset manager. This is known as the owner-control rules. The tax advantages considerably improve the return on investments while at the same time giving the policyholder and asset manager the freedom to select investment instruments without having to consider individual taxation circumstances. 

Asset Protection 

The key is that legal title to the assets – ownership – passes from the policyholder to the insurance company. Essentially, the assets underlying the policy cannot be attached or accessed by a creditor or other claimant in a legal process. I.e., if the policyholder is sued, the plaintiff cannot get at the assets wrapped in the policy.  A Liechtenstein insurance policy will give an extraordinary level of asset protection if it meets the following conditions:

  • The policyholder designates his spouse or descendants (i.e. children) as beneficiaries, or
  • The policyholder designates anyone as an irrevocable beneficiary, and
  • Designation of beneficiary occurred more than 12 months prior to bankruptcy proceedings or the seizure of assets, and;
  • The designation of beneficiary was not made with the intent to damage creditors.

There are three main cases:

1.   Asset Protection in case of bankruptcy 

  • The insurance policy will be protected by Swiss law against any debt collection procedures instituted by the creditors of the policy owner and will also not be included in any Swiss bankruptcy procedure in this regard.

2.   Protection in case of a foreign judgment

  • Even where a foreign judgment or court order expressly decrees the seizure of such policy, or its inclusion in the estate in bankruptcy, such an insurance policy may not be seized in Switzerland or included in the estate in bankruptcy.

3.   Protection under duress

  • If an insurer receives a letter from the policyholder revoking the beneficiary designation, the insurer may come to the conclusion that the instruction received from the policyholder does not express the policyholders true intent and was forced upon him by the foreign judge or court.

Insurance law generally protects the insurance policy against any debt-collection procedures initiated by the policyholder’s creditors and excludes it from any bankruptcy procedures.  Even if a foreign judgment or court order expressly decrees the seizure of the policy or its inclusion in the estate in bankruptcy, the policy may not be seized in Liechtenstein or included in the estate of the bankrupt party.  Unlike the designation of another third party as a beneficiary, in the case where a spouse and/or descendants are so designated, it is irrelevant whether the designation is irrevocable or revocable. The insurance policy will continue to be protected from the policyholder’s creditors even if the designation of the spouse and/or descendants is revocable. 

Tax planning and optimisation

Every jurisdiction has its own rules and varying treatments on taxation of life insurance. One more source of variation that makes this all so confusing and competent tax counsel essential. The following is a generalisation of tax benefits, for specific jurisdictions, local tax counsel must be consulted. 

A properly structured insurance contract can provide significant tax advantages in most cases. Insurance can offer significant relief from income and inheritance taxes. In order to benefit from tax advantages, the life insurance policy must comply with the tax regulations in the policyholders country of residence. For example, a certain minimum term may be required or the insurance must include a certain amount of life cover (risk shift) with the investment component. Income (dividends, interest, etc.) and capital gains on assets placed in a life insurance policy are generally tax-free. Often the policy proceeds are tax free, i.e., the proceeds are paid net to the beneficiary. The assets paid into a life insurance policy do not constitute a gift as they are generally treated as a premium payment. Furthermore, these assets do not generally form part of the policyholder’s estate for inheritance or wealth tax purposes, since the nature of the policyholders interest in the assets is not that of an owner but the holder of an insurance policy. On maturity of the policy, capital gains may be tax-free in many countries, or taxed at a very low rate.

In general, a life insurance policy enjoys full tax deferral during buildup - no tax on income or capital gains on assets in the portfolio during the accumulation period. On maturity of the policy, the payout is split into two; principal and gain. The gain is generally taxed at either the beneficiaries marginal rate or a reduced rate on payout. In many jurisdictions, if the benefit is paid upon the death of the insured person, the beneficiaries receive the full payout (principal and gain) tax-free. This is one of the main attractions of life insurance; for succession planning, properly set up, the entire payout when the insured event takes place can be completely free of tax. 

Private Placement Life Insurance (PPLI) for US persons 

PPLI for US persons is a special kettle of fish, so we devote a special section to it. For US persons, PPLI has a very high potential value-add to a wealth plan. 

Life Insurance in the US

The first issue is domestic vs. foreign. Life insurance can be bought freely from domestic or foreign insurance companies. The US is relatively unrestricted. US law requires insurance contracts to adhere to the internal revenue code (IRC) but does not specify jurisdiction of the insurance company. This allows offshore providers to provide insurance services to US persons. The relevant sections of the IRC are as follows: 

  • S. 7702: Life insurance, what is recognised as life insurance.
  • S. 72: Annuities, what is recognised as an annuity.
  • S. 817(h): Diversification. The diversification rules to qualify for tax deferral on variable policies.
  • S. 953(d): Tax status of the insurance carrier.

The policy must adhere to the IRC. If the policy adheres to the IRC, it can be US compliant. 

Domestic vs. Foreign Insurance

Or, why go offshore at all?  Domestic life insurance is state regulated in the US, with access to state guarantee funds. Policyholders and carriers can transact and negotiate only in that state the carrier is licensed for. The choice of investments is relatively limited, often in-house company funds only, with associated higher costs, sometimes much higher. Access to policies is via brokers or other intermediaries who receive commissions for their services. These commissions can represent a fairly large proportion of the paid-in premium.

Foreign life insurance is regulated by the jurisdiction of the country of domicile. I.e., that countries’ financial regulator. There are generally no guarantee funds, investment risk for variable policies is borne solely by the policyholder. The policyholder has much more flexible options, the policies are generally (much) lower cost as the policyholder has direct access to the insurance carrier – there is no broker as middle man. In short, tax deferral remains assured, asset protection is tighter, privacy is greater, costs are lower, investment flexibility is greater and its fully compliant. At the private banking level, offshore insurance is a no-brainer. 

The “953(d)” Insurance Company 

For US persons, issues arising from recent legislation will arguably promote going offshore using the 953(d) insurance company, an insurance company that has made the election to be treated as a US taxpayer. Moving away from the model of the Liechtenstein or Luxembourg based carrier, this is a special model that has emerged for US persons and those with “US connections”. The client may still have a Swiss asset manager, the assets may still be located with a Swiss custodian, but the compliance, reporting, payments and investing is made easier and more cost effective by using the 953(d) company. 

We take the example for this discussion of a Bahamas based 953(d) company. The 953(d) Bahamas company retains all the advantages of Liechtenstein and Luxembourg carriers, with the advantage that the structure is fully transparent. Simply put, a 953(d) company is transparent, compliant and is less likely to arouse the attention or worse, the ire of the IRS. Tax deferral is assured and asset protection remains airtight under Bahamas insurance law, so important in the litigous US environment.

The 953(d) refers to Section 953(d) of the US Internal Revenue Code (IRC). This is the section that allows a non-US Insurance Company to make the election to be treated as a US taxpayer. This election provides some very material benefits to both insurance company and policyholders. With the Foreign Account Tax Compliance Act (FATCA) and Dodd Frank looming like a tropical hurricane on the horizon, we predict this model will become much more popular over the next few years. In fact with FATCA and who know what else looming, the “953(d)” insurance company solution may well become the solution of choice for US persons. We also predict a movement of some policies currently with Swiss and Liechtenstein insurers to 953(d) insurers by means of the 1035 exchange. 

As a US taxpayer, the insurance company can invest into assets located anywhere in the world, including the USA and Europe. Through the policy structure, the policyholder and/or the beneficiaries can legally defer income tax, capital gains tax and mitigate estate tax on the assets within the policy. Regardless of the location of those assets; US, Europe, Asia, etc. Like a Liechtensteiner or Luxembourger insurance company however, the insurance company does not engage in trade and business in the US and is not subject to state insurance laws. 

There are some special points to note with this model. 


The “953(d)” insurance company pays US federal income tax on its worldwide income, it has therefore a US tax ID number, a “TIN”.  Moreover the policyholder is exempt from the 1% federal excise tax on premium payments as the company is treated as domestic, plus there is no state insurance premium tax.  There is no withholding tax on US source dividend income. 

For the policyholder and benficiaries, the insurance structure itself can be used to optimise income, Capital gains and estate tax planning. Additionally, there is no withholding tax on US investments as the company is US person with a completed W-9 form. 

Legal & Compliance

The “953(d)” insurance company is treated as a domestic corporation by the US government for tax purposes. The insurance company ( not the policyholder) completes and submits the W-9 form to the bank facilitating compliance with US domestic custodians and paying agents. This makes the coming 35% withholding tax under FATCA a non-issue. The company is not subject to state or federal insurance law being an offshore provider. Finally, there is no requirement to file and maintain form 720.

The company meets the definition of a US person for tax purposes, however the company is not considered a US person under US securities law. This means that the department of the treasury and the IRS consider the company a US person but the SEC does not. Hence the company is not subject to US securities laws and regulations.


The company is able to hold a wide range of bankable and non-bankable assets, including: 

  • Real estate
  • PFICs, PFHCs, CFCs
  • Closely held companys
  • US operating businesses
  • Image rights
  • Patents and trademarks
  • Stock portfolios
  • Cash
  • Art and objects of passion

Essentially, the insurance structure provides the opportunity and the structure to invest in foreign non-registered funds and other investments in a tax-efficient way.

What does Envisage do? 

Envisage is the intermediary on the policy. I.e., Envisage manages and coordinates communications between you and client and the insurance company and the investment manager. In addition to which, we manage and coordinate tax lawyers, accountants, actuaries, the family office and any other professionals involved.

We help set up the policy with the appropriate provider, pull in appropriate subject matter experts depending on need. This may be tax experts, estate planning lawyers, asset protection specialists, trust companies if you want to set up “Trust Owned Life Insurance” (TOLI) and any number of other tweaks to the life insurance structures.

We firmly believe every client is unique and with insurance, there is no “one size fits all” solution. As an independent advisor, we are not bound to any single provider.

We have a lot of experience with the various service providers and we focus on benefit to you, the client.