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What is PPLI? Private Placement Life Insurance Explained for Business Owners

A few months ago, I sat down with a business owner who’s preparing to exit his company. He’s expecting a sale in the $25-30 million range. He built something remarkable. But here’s what stuck with me from that conversation:

He had a friend who sold a similar business two years ago for roughly the same amount. That friend walked away with about $18 million after taxes.

My client? He’s on track to walk away with about $24 million.

Same type of business. Similar exit value. $6 million difference in what they actually keep.

The difference? Three years ago, my client structured a Private Placement Life Insurance (PPLI) policy before his exit. His friend didn’t.

Today, I want to solve a problem for you. If you’re building a business toward an exit—whether that’s $25 million, $50 million, $100 million, or more—or if you’re sitting on significant liquid capital and wondering how to deploy it tax-efficiently, I want you to understand what PPLI actually is, who it’s for, when it makes sense, and when it absolutely does NOT make sense.

Most people I talk to have heard of PPLI but couldn’t quite explain it to someone else. I want to fix that for you today.

Before We Go Any Further

This article is for educational purposes only. I’m not giving you financial advice, tax advice, legal advice, or investment recommendations. PPLI is a complex financial structure that requires you to work with qualified professionals—PPLI specialists, tax attorneys, estate planners, and investment advisors who understand your specific situation.

What I’m about to share is conceptual education. It’s designed to help you understand what PPLI is and whether it’s worth investigating further. But you should never implement any strategy discussed here without working directly with experienced professionals.

What is PPLI?

Private Placement Life Insurance is a customized life insurance policy designed for high-net-worth individuals and business owners. But here’s what makes it different from the whole life or universal life policies you might be familiar with:

You control the investment strategy.

With traditional life insurance, the insurance company decides where your money gets invested. The best life insurance companies have been doing this for 100+ years. They’re consistent. But you have zero say in it.

With PPLI, you determine what the policy invests in—whether that’s private equity, hedge funds, real estate, or even your own business.

But (and this is a big but) there’s a catch.

The IRS Requirement

Here’s the thing: To maintain the tax benefits of life insurance, the IRS requires that you give up direct control over day-to-day investment decisions.

You can’t call your investment manager and say, “Sell Tesla today” or “Buy that rental property right now.” If you do that, you risk collapsing the entire tax structure. And trust me, you don’t want that.

But here’s the nuance: You DO set the overall investment thesis. You decide the strategy. The asset allocation. The risk parameters. The return targets. The downside protection measures. Someone else (a trustee or investment manager) executes that strategy on your behalf.

You’re the architect. They’re the operator.

Most people don’t understand that distinction. If that sounds restrictive to you, PPLI might not be your tool. And that’s okay. There are other strategies out there. But I want you to have the full picture before you decide.

How It Actually Works

Here’s the flow:

  • You fund the policy with either cash, alternative assets, OR your business assets (shares, options, or the business itself)
  • The policy has a life insurance death benefit
  • Inside the policy, investments grow tax-deferred (no capital gains, no income tax on growth) and can be accessed tax-free
  • You can access capital via low-interest loans that you essentially pay back to yourself (these are not the same types of loans you would take on a whole life policy for example)
  • When you pass away, the death benefit pays off the loans, and the remainder passes tax-free to your heirs via your trust structure (which if we did it would be dynastical)

Think of PPLI as a tax-efficient container. The investments inside are protected from taxation as long as you follow IRS rules. The life insurance component is what creates that protection.

Who is PPLI For?

I want to solve this question for you right now. Here’s the reality: PPLI typically makes sense for people in one of these situations.

1. You Have $10 Million or More in Liquid Capital

If you have $10 million+ (or you’re expecting a significant liquidity event soon), PPLI becomes worth investigating. Below that threshold, the fees and complexity usually don’t justify it (could be worth investigating from $7-10 million). 

Why $10 million? Because the fees to set up and maintain PPLI are significant. We’re talking $50,000 to $150,000+ in legal and set up fees alone, plus ongoing investment management fees (typically around 1% of assets), plus insurance costs. At $10 million+, those fees become a reasonable price to pay for decades of tax-deferred growth. Below that, it’s harder to justify.

2. You’re Building a Business Toward an Exit

If you’re planning to scale your company to exit in the next 1-5+ years for $15 million, $50 million, $100 million, or more, PPLI can be a tool to minimize taxes on the capital gains that will be created and potentially even some of the income tax you pay on an annual basis. 

Here’s the critical piece that most people miss: You DO pay capital gains when you sell the business INTO the policy on the value it has today. PPLI protects the growth that happens AFTER that.

Let me say that again because it’s important: PPLI does not help you avoid the capital gains tax on the value you have already created. It protects future growth.

If your business is worth $100 million today and you contribute it to a PPLI policy, you’re paying capital gains on that $100 million. But if it grows to $200 million over the next 10 years, you pay $0 in taxes on that $100 million in growth.

Most business owners I talk to think PPLI eliminates the tax bill entirely. It doesn’t. It protects what happens next.

3. You’re Already Investing in Alternative Assets

If you’re deploying capital into private equity, hedge funds, venture capital, or commercial real estate anyway, PPLI can be a tax-efficient structure for holding those investments.

Instead of paying capital gains taxes every time you sell an asset and reinvest, everything grows tax-deferred inside the policy. Over 20-30 years, that compounding of saved taxes is significant.

4. Estate Planning is a Priority

If you want to pass wealth to the next generation tax-efficiently, PPLI provides a death benefit that can cover estate taxes or create generational wealth outside of your taxable estate.

5. You’re Comfortable Giving Up Direct Control

Here’s the filter. If you’re someone who needs to personally approve every trade, every investment decision, every real estate acquisition, PPLI is probably NOT for you.

You set the strategy. But someone else executes it.

If that doesn’t sit well with you, don’t force it. There are other ways to build wealth.

Who It’s NOT For

  • People who need maximum short-term liquidity
  • People who want to actively trade their own portfolio
  • People with less than $10 million in liquid capital
  • People who aren’t comfortable with complexity

Why Would You Consider It?

Let me show you what PPLI actually does. Because the benefits are real—if it’s the right fit.

1. Tax Efficiency on Future Growth

Once capital is inside the PPLI policy, it grows completely tax-deferred. No capital gains taxes. No income taxes (on the shares of the business that are inside the policy). No annual tax drag on dividends, interest, or realized gains.

Here’s an example: Let’s say you contribute $50 million to a PPLI policy. Over 20 years, it grew to $200 million. Outside a PPLI structure, you’d pay capital gains taxes on that $150 million in growth—roughly $35-40 million in taxes, depending on rates.

Inside PPLI? You pay $0 in taxes on that growth.

2. Access to Capital via Low-Interest Loans

You can borrow against the policy value at reasonable interest rates.

You’re essentially borrowing from yourself. The interest you pay goes back into the policy value (this is slightly different than if I had a normal permanent whole life policy)

When you die, the death benefit covers the loans, and the remainder passes to your heirs income tax-free.

This can solve the liquidity concern. You’re not “locking up” your money forever. You have access to it, just through a different mechanism than logging into your brokerage account and selling stocks.

3. Estate Planning Benefits

The death benefit passes income tax-free to your heirs and when done inside a dynastical trust it can pass estate tax free as well. 

Here’s an example: You contribute $50 million to a PPLI policy. Over 20 years, it grows to $200 million. When you pass away, that $200 million passes to your dynasty trust, which distributes it to your children and grandchildren.

Outside PPLI, that $200 million could face 40% estate taxes (~$80 million). Inside PPLI, it passes tax-free.

The family saves $80 million.

4. Investment Control (Without Direct Management)

You set the investment thesis. You decide the asset allocation, the risk profile, the types of investments, the hedging strategies, the downside protection parameters.

You just can’t call the shots on individual daily trades.

For many sophisticated investors, this is actually PREFERABLE because it removes emotional decision-making. You set the rules. Someone else executes them. Like anything no one cares about your money like you do so you have led professionals to be aligned to your best interest.

5. Income Tax Savings on Business Profits

If you contribute your business (or a percentage of it) to the PPLI policy BEFORE you sell it, the profits the business generates while inside the policy are NOT subject to income tax.

Here’s an example: Your business generates $20 million in profit next year. If 50% of the business is inside the policy, $10 million of that profit is income-tax-free. The other $10 million (outside the policy) is taxable.

Why Would You NOT Consider It?

Now let me show you the other side. Because PPLI isn’t for everyone. And if it’s not right for you, I want you to know that upfront.

1. Complexity

PPLI is not simple. It requires coordination between PPLI specialists, tax attorneys, estate planners, trust administrators, investment managers, and business valuation experts.

If you don’t want to deal with that complexity, there are simpler strategies. And that’s okay.

2. Loss of Direct Control

You cannot make individual investment decisions on a whim. You set the strategy, but someone else executes it.

If you’re someone who loves actively managing your portfolio—personally picking stocks, personally closing real estate deals—PPLI will feel restrictive.

Here’s my take: I don’t personally view this as a risk. It’s just a structural requirement. But some people love the hands on control  PPLI probably isn’t the right fit. And that’s okay.

3. Fees

PPLI involves several layers of fees:

  • Legal fees: $50,000 to $150,000+ (depending on complexity)
  • Death benefit fees: Annual cost for the insurance component (comes out of policy value)
  • Investment management fees: Typically around 1% of assets under management
  • Administrative fees: Ongoing compliance, reporting, policy administration

These fees are significant. Which is why PPLI typically only makes sense at $10 million+ in capital.

4. Liquidity is Different

You CAN access your capital, but it’s via loans, not direct withdrawals.

This feels different than just logging into your brokerage account and selling stocks. If you need immediate, frictionless access to large amounts of cash on a weekly or monthly basis, PPLI may not be ideal.

5. Not a Tax Avoidance Tool for the Initial Sale

This is critical.

When you contribute a business (or shares of a business) to a PPLI policy, you ARE paying capital gains tax on the current value.

PPLI does NOT help you avoid that tax.

What it DOES do is protect all FUTURE growth by giving it a tax-deferred wrapper.

Here’s an example: You own a business currently valued at $100 million. You contribute 50% ($50 million) to the PPLI policy. You will pay capital gains tax on that $50 million contribution (roughly $10-12 million in taxes).

However, if that $50 million grows to $200 million over the next 10 years, you pay $0 in taxes on that $150 million in growth. Outside the policy, you’d pay $30-40 million in taxes on that growth.

So yes, you’re paying tax upfront. But you’re protecting decades of future growth from taxation.

Most business owners I talk to think PPLI eliminates the tax bill entirely. It doesn’t.

6. Not All-or-Nothing

Here’s the thing: PPLI is just one tool in the toolbox.

When you’re investigating it, you’re asking:

  • Does this fit my liquidity needs?
  • Does this fit my tax needs?
  • Does this fit my investment philosophy?
  • Does this fit my estate goals?
  • Do I trust the people I’m working with?

If ANY of those are off, there are other strategies. You don’t have to force PPLI to work if it doesn’t fit.

When Do You Have a Conversation with a PPLI Specialist?

I want to solve this question for you right now. Here are the decision triggers:

You Should Investigate PPLI If:

  • You have $10 million+ in liquid capital (or expect to soon)
  • You’re planning a business exit worth tens or hundreds of millions and the current value is still lower.
  • You’re already investing in alternative assets and want more tax efficiency
  • Estate planning is becoming a priority and you are above the estate tax threshold.

Questions to Ask a PPLI Specialist

Here’s what you need to know before you work with anyone:

  • “Have you structured PPLI policies for business owners planning exits, or do you only work with cash-based policies?”

Not all PPLI specialists handle business contributions. Some only do simple cash-based structures. Make sure you’re talking to someone with experience in YOUR type of case.

  • “Can you provide references or case studies of clients in similar situations?”
  • “What are the total fees? Can you give me a breakdown?”
  • “How do I access capital from the policy? What are the loan terms?”
  • “What happens if I need to make changes to my investment strategy?”
  • “What are the risks? What could go wrong?”

Professional Selection is Critical

There are multiple PPLI professionals out there. Some specialize in straightforward, cash-into-policy structures. Others specialize in complex, business-into-policy structures.

If you walk into the wrong office, they won’t know how to handle your situation.

Make sure you’re working with someone who has successfully done cases like yours. Ask for proof. Ask for references.

Real-World Examples

Let me show you what this looks like with real numbers.

Example 1: Cash Deployment (Simple Path)

A business owner exits their company and receives $50 million in cash (after taxes). They don’t need all of it for lifestyle. They want to invest $30 million for long-term growth.

They deploy it into a PPLI policy with a diversified investment strategy (private equity, hedge funds, real estate, etc.). Over 20 years, it grew to $120 million.

  • Outside PPLI: They’d pay roughly $18-20 million in capital gains taxes on that $90 million in growth.
  • Inside PPLI: They pay $0.

They access capital along the way via reasonable loans. When they die, the $120 million+ passes to their heirs income tax-free and potentially estate tax free.

Example 2: Business Contribution (Complex Path)

A business owner has a company currently valued at $100 million. They’re planning to sell in 3 years for an expected $200 million.

They work with a PPLI specialist to contribute 50% of the company ($50 million current value) into the policy BEFORE the sale.

  • They pay capital gains tax on the $50 million contribution (~$10-12 million).
  • Over the next 3 years, the business grows inside the policy.
  • When they sell for $200 million, 50% of the proceeds ($100 million) are inside the PPLI policy.
  • The $50 million in growth (from $50M to $100M) is completely tax-free.
  • Outside the policy, they’d pay ~$12-15 million in capital gains on that growth.

They saved $12-15 million in taxes.

Additionally, while the business was inside the policy during those 3 years, 50% of the business profits were income-tax-free. If the business generated $20 million in profit over those 3 years, $10 million of it was tax-free. That’s another $3-4 million in tax savings.

Total tax savings from PPLI structure: ~$15-19 million.

Example 3: Liquidity Access

A policyholder has $50 million inside a PPLI policy. They need $5 million to invest in a new business opportunity that they would like to have outside the PPLI structure.

They call their investment manager and request a $5 million loan against the policy. The loan is issued. The $5 million is transferred to their bank account. They deploy it into the new opportunity.

Over time, they can pay back the loan or let it remain outstanding. When they die, the death benefit covers the loan balance, and the remainder passes to their heirs.

Here’s What I Want You to Do

If you’re a business owner planning an 8 or 9 figure exit or if you’re sitting on $10 million+ in liquid capital and you want to deploy it tax-efficiently for the long term—PPLI is worth investigating.

This is complex stuff. Do your homework. Ask tough questions. Make sure it fits.

If you feel like you’ll never be able to find the right professional and you don’t know where to even start looking, we would be honored to be interviewed by you to determine if we could be that professional for you.

Remember

This article is for educational purposes only. I’m not providing financial, tax, legal, or investment advice. PPLI is a sophisticated strategy that requires consultation with qualified professionals who understand your specific situation.

Never implement any strategy discussed here without working directly with experienced PPLI specialists, tax attorneys, estate planners, and investment advisors.