The differences, advantages, and disadvantages of private placement variable annuities and private placement life insurance must be understood when comparing them.
Despite some similarities, their structures and functions are different. We’ll touch on them in this post.
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PPLI vs PPVA Overview
PPLI Meaning
Policyholders can invest in hedge funds, private equity and other alternative assets through PPLI.
Private placement life insurance can be set up as an irrevocable trust, which allows for the transfer of wealth to beneficiaries and offers funds for other costs like estate taxes.
A PPLI policy can provide a sizable death benefit which strengthens its function in estate planning.
What is a private placement variable annuity?
Accredited investors and qualified buyers are the target market for this specialized financial offering.
It enables tax-efficient growth in investments by fusing the advantages of private placement options with the features of a variable annuity.
Like traditional annuities, PPVAs permit tax-deferred growth of the annuity’s investments.
Private placement variable annuities give policyholders access to different asset classes like:
- bonds
- mutual funds
- stocks
- private equity
- other alternatives
PPVAs do not offer a death benefit, in contrast to private placement life insurance.
PPVA vs PPLI Pros and Cons
When properly structured, PPLI provides tax-free death benefits as well as tax-deferred growth on the value of investments.
The death benefit may also be exempt from estate taxes if it is held by an irrevocable trust, which makes it a useful instrument for planning an estate and wealth transfer.
Withdrawals from PPVA are subject to ordinary income tax, which may not be as advantageous as withdrawals from PPLI with a more favorable tax treatment.
Although PPLI offers more investment options than PPVA, it usually has higher fees as well as higher minimum investment requirement.
Also, PPVA typically does not require medical exams. PPLI has a more complicated structure that includes medical underwriting, which can make the acquisition process more difficult.
Bottom Line
PPVA and PPLI provide special benefits designed for wealthy people seeking tax-efficient investment choices.
PPLI is the best option for people who want substantial investment freedom on top of broad life insurance cover.
Meanwhile, PPVA is a compelling choice for investors seeking easier acquisition procedures and reduced entry costs.
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