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.


This is the second installment of a series in the new year to help financial advisors to build and retain a clientele and increase assets under management with cutting-edge ideas. Each article is designed to bring a creative planning idea that helps the financial advisor to demonstrate value while implementing solutions with financial products.


Private Placement Life Insurance (aka PPLI)


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 can select these funds within the life insurance policy with the carrier’s fund election form.


Private Placement Variable Deferred Annuities (aka PPVA)


A deferred annuity is a deferral of the promise to make a series of payments to the policyholder. The deferral may be set for a fixed period. Many contracts list a maximum age of 85 or 90 for the deferral period. The account value in a “fixed” annuity is based upon the crediting rate based upon the insurer’s investment performance on general account assets. Most insurance general account investments are in investment grade bonds.


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.


Tax Advantages of Life Insurance and Annuities