NOWOTNY KNOWS SQUAT! Part 2 - Using PPLI to Raise AUM and Sell Life Insurance

In the last installment I pointed out with pride the benefits of knowing “squat” at least in regard to the weight room. Fortunately, I have avoided serious injury in my lifting career. In fact, Aunt Bea has probably had more joint injuries than I have had. Mrs. Nowotny has never been a fan of the Iron Game and routinely asked me why I couldn’t develop an interest in golf, tennis, or sailing, in that order.


These days I have a small but valuable collection of kettlebells particularly in the Pandemic when everyone wanted to equip a home gym. My new fitness model is something I call “Compound Fitness” which like compound interest accumulates benefits over time. I do a little bit of lifting every day along with some anaerobic cardio using the Concept 2 rower, ski erg, and bike. I feed my competitive inclination by posting my times. I am still trying to be a “contender.”


PPLI is a form of variable universal life insurance. The policy is strictly available for accredited investors and qualified purchasers as defined under federal securities law. The policy is institutionally priced and is virtually a “no load” product. The insurer provides the policyholder with the ability for the policyholder to customize the investment options within the policy. The range of investment options can include a customized fund managed by the client’s existing investment advisor as well as a range of asset classes including hedge funds, real estate and private equity.


The assets supporting the policy cash value are separate or segregated from the life insurer’s general account asset and its creditors. The policyholder is able to select these funds within the life insurance policy with the carrier’s fund election form.


Private Placement Variable Deferred Annuities


A deferred annuity is designed for long-term savings. It allows for a deferral of payment that promises to make a series of payments to the policyholder. The deferral may be set for a fixed period of time or indefinitely. Many contracts list a maximum age of 85 or 90 for the deferral period. In a variable annuity the investment performance is based upon the investment performance of separate account funds. These funds are segregated from the insurer’s general account assets. Traditionally, these funds are mutual fund clones or sub-accounts managed by investment management firms in the mutual fund industry. The investment performance for these accounts is a direct pass-through to the policyholder.


The private placement version of this product is for accredited investors and qualified purchasers based upon the definition under federal securities law. Like PPLI, the products are institutionally priced with no surrender charges. The investment options include hedge fund, private equity and real estate options as well as traditional mutual fund-like options.


So Where Do I Benefit?


A financial advisor always benefits himself professionally (and financially) when he brings planning ideas that no one else is bringing to the client. No doubt increasing taxes must be on every high-net-worth taxpayer’s mind. PPLI provides an excellent opportunity to allow the financial advisor to manage the assets within a PPLI which offers customized investment management. The advisor has the ability to manage these assets on a tax-advantaged basis. The financial advisor has the ability to sell the underlying reinsurance used within the policy. This coverage is fully commissionable life insurance and should not create a selling away issue for the financial advisor. We call this in Ingles a “win-win” situation. The client receives the tax benefits of permanent life insurance – 1) Tax-free accumulation; 2) Tax-free withdrawals; 3) Income tax-free death benefit and 4) Assets that are protected from the claims of creditors.


Summary


I have never met a financial advisor who felt that his business had enough assets under management or a life insurance agent who declared that all of the life insurance in the world had been sold and there were no policies remaining to be sold. The idea outlined in this article will help you to build assets under management and sell more life insurance. If you need help explaining and implementing these solutions, call me! Operators are standing by for your call!



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While this website provides information, it does not constitute legal advice.  The best way to get guidance on your specific legal issue is to contact a lawyer.  To schedule a meeting with Gerald, please call or complete the form above.