Global Private Placement Life Insurance (PPLI) Market Research Report 2023-Competitive Analysis, Status and Outlook by Type, Downstream Industry, and Geography, Forecast to 2029

Global Private Placement Life Insurance (PPLI) Market Research Report 2023-Competitive Analysis, Status and Outlook by Type, Downstream Industry, and Geography, Forecast to 2029

PPLI is a special type of life insurance designed to offer policyholders the opportunity to make alternative investments in a tax-advantaged structure, with a high cash value compared to a relatively low death benefit. It is offered privately, not through a public offering, and is ideal for high-net-worth individuals with an annual income in the millions and a net worth of $20 million. PPLI allows for customized and internationally diversified investment strategies based on life insurance and annuity policies.

Market Overview:

The latest research study on the global Private Placement Life Insurance (PPLI) market finds that the global Private Placement Life Insurance (PPLI) market reached a value of USD 1615.9 million in 2022. It’s expected that the market will achieve USD 3190.3 million by 2028, exhibiting a CAGR of 12.0% during the forecast period.

The COVID-19 pandemic has led to inefficiencies in business management, severely disrupting commuting and production schedules. Many businesses are struggling financially and need to cut costs and reduce overhead in various ways to maintain cash flow. In the short term, the pandemic has led to a drop in consumer spending, which in turn has led to a decline in the desire to purchase insurance products of all types. On the positive side, government lockdowns and working from home have reduced physical contact, and businesses and consumers have accelerated their shift to electronic payments during the COVID-19 pandemic, creating conditions for online financial management activities. Fintechs are growing rapidly in the financial services industry, and they are fueling consumer expectations for owning a plethora of digital financial tools. Sophisticated digital apps and dashboards facilitate consumers through the wealth management process. Meanwhile, a majority of high-net-worth clients are using digital tools to manage their wealth during the pandemic, which can make better use of their time. COVID-19 has also created a heightened sense of purpose for wealthy families. The EY Single Family Office Study, published in May 2022, revealed that 44% of family offices intend to make investments based on their potential positive social or environmental impact in the next 12 months. As a result, the PPLI industry has grown rapidly during COVID-19.

Advantages of PPLI

PPLI is designed to provide policyholders with a tax-advantaged structured investment that offers many advantages. First of all, PPLI increases the freedom of investment. It is carried out in the name of an insurance company, so it is not restricted by citizenship. There is often reduced or no reporting obligation due to increased confidentiality due to insurance secrecy laws and due to growing tax incentives. Second, when properly structured, creditors cannot claim the value of the policy, and the policy may not be forfeited or brought into bankruptcy proceedings. And because of its structure, the assets in a PPLI portfolio can be allocated to investment opportunities and strategies investors would not normally have direct access to, while still leveraging lower expense ratios to generate higher returns. PPLI can be tailored to each client, allowing internationally diversified portfolios to be incorporated into the legal structure of life insurance, and these options can be adjusted over time, resulting in a range of desirable wealth planning advantages. On the tax front, PPLI combines the powerful tax advantages of life insurance with the flexibility of investing in hedge funds and other complex asset management products, including traditional and alternative investments such as venture capital, private equity, real estate, and hedge funds. PPLI can customize policies for tax efficiency based on the tax residence of policyholders and beneficiaries, ensuring that the primary jurisdiction for investment has the correct tax treaties and top-notch institutions. Investment income realized within the PPLI policy accumulates tax-free within the policy, avoiding phantom income. Tax-free withdrawals and tax-free inheritance of the face value of the policy can be achieved depending on the policy options adopted, thereby accelerating the performance of the asset through tax-free compounding. In terms of inheritance, PPLI is separate from ordinary inheritance. Customers can choose to pay directly or execute the will within 30 days after death, which is conducive to improving the benefits of wealth transfer and charitable planning. In addition, PPLI provides liquidity, and funds can be partially withdrawn or fully liquidated at any time. PPLI is usually structured as a variable universal life policy, which means the premiums are flexible. Policyholders can pay as much or as little premium as they want at any time. The policy can be surrendered at any time without incurring the surrender charges common in retail life insurance policies. PPLI portfolios can be collateralized in exchange for loans, which allows for seamless inheritance of assets. The number of investment managers with the knowledge and experience to manage IDFs or SMAs for PPLI policies has increased significantly in recent years. This growth provides investors with more options, negotiable fees and costs, and greater flexibility with customized PPLI policies. Investment managers, tax and estate planning attorneys, and accountants collaborate to better understand, structure, and manage PPLI strategies for individuals and families. As such, the many advantages of the PPLI justify its applicability to families and high-income individuals seeking to convert substantial taxable assets into favorable tax-efficient investments. As society and individuals learn more about this product, its market demand will also continue to increase.

Increased demand for wealth transfer and planning by high-net-worth individuals

PPLIs are unregistered securities and agents can only present them to accredited investors, that is, individuals and families with substantial financial reserves. According to the 2022 Global Wealth Report, high-net-worth individuals account for only 1.2% of the global population but control about 48% of the world's wealth. There are 62.5 million people worldwide who qualify as high-net-worth individuals. North America has 7.9 million people, Asia Pacific has 7.2 million people, and Europe has 5.72 million people. Other regions lag far behind. The changing financial landscape, global pandemics, and regional wars are prompting the wealthy to re-examine wealth transfer and planning, taxation, and global mobility. The largest wealth transfer in history is underway, with the wealthiest members of the baby boom generation set to pass trillions of dollars on to their descendants, according to a new description from The New York Times. Biden will unveil a series of tax hikes for wealthy Americans and corporations in the budget. According to the Times, of the $84 trillion expected to be passed on from older Americans to millennials and Gen X heirs by 2045, $16 trillion will be transferred over the next decade. Rising wealth inequality leads to the concentration of assets in the hands of a few. As these individuals reach retirement age and seek ways to reduce estate taxes, they are likely to begin passing on the bulk of their wealth before they die. Large wealth transfers have major implications for individuals and society as a whole. According to a study by RBC Wealth Management, inheritance tax, maintaining a lifestyle in later life, and when to give are the top concerns of high-net-worth individuals of all ages in the UK. According to Cerulli's 2021 Wealth Transfer Report, developing relationships with clients' children (78%) and advancing technology (70%) are the top initiatives for HNW practices. A quarter of HNWIs are considering adding a digital advice platform within the next three years.

The wealthy are increasing their understanding of personal finance, and wealth managers will help HNWIs future-proof their plans and stay fluid with their evolving goals. The multigenerational shift around wealth will benefit firms that can sustainably build advisory relationships with younger clients in the future, and wealth managers will need to adapt and deliver highly personalized and tailored services with greater attention to detail. In addition to basic client demographics and investment objectives, institutions should understand client behaviors, tendencies, and attitudes related to their careers, lifestyles, and family dynamics to inform planning and investment conversations. This includes forming multigenerational teams, using financial education to help resolve conflict, and understanding who else may influence decision-making. As grandchildren increasingly become the primary beneficiaries of estates, wealth managers can offer hybrid business models to ensure a smooth transition to meet the needs of younger clients. Younger, more tech-savvy generations typically have a higher risk appetite and are more value-conscious, requiring careful consideration of communication channels and how they interact. This means the importance of staying on the cutting edge of digital asset technology, estate planning, and wealth structuring strategies, such as cryptocurrencies, alternative investments such as ETFs, and ESG products. Additionally, traditional fee structures may be outdated. Clients are increasing their concern for transparency and value delivery, which means that HNWIs are willing to pay understandable and reasonable levels of fees. Since one of the outstanding features of PPLI above any other life insurance is that all asset classes can be placed in the policy, PPLI asset structures are suitable for wealthy families who want to combine tax-free investment growth, wealth transfer, and asset protection through a conservative and efficient structure. Therefore, it is expected that high-net-worth individuals’ demand for wealth transfer and planning will continue to increase, which will drive the expansion of the market for wealth management products such as PPLI.

Disadvantages of PPLI

PPLI also has some disadvantages and limitations worth considering. First, certain requirements must be met to purchase a PPLI policy. PPLI investors need to be able to pay annual premiums of $1 million or more for several years, with at least $3 million to $5 million being typical. For best efficiency and results, investors should plan to invest in two or more annual premiums. If investors want the flexibility to withdraw or borrow policy assets on a tax-advantaged basis, the total premium commitment should be paid in equal installments over some time (usually four to five years). The insurance costs associated with PPLI are mainly premium tax, insurance company charges, broker remuneration, and insurance cost charges. Premiums The federal DAC premium tax is approximately 1% of the premium, state premium taxes may vary. South Dakota and Delaware have low state premium taxes, so most policies are issued to trusts or LLCs in those states. Insurance company and broker fees are typically less than 0.50% of the policy AUM per annum. Second, PPLIs must still meet the IRS' investor control, insurance, and diversification standards. If the owner exercises too much control, the IRS may revoke the policy's tax benefits. Assets held in an SMA or IDF must therefore be owned by the insurance company and not the policyholder. Various restrictions on when and how much cash value can be obtained, as well as if the policy's parameters do not meet the code, can have serious adverse tax consequences. Another disadvantage is the high cost of private placement insurance. PPLI is a complex insurance product, which increases the cost of owning and maintaining PPLI for policyholders with large portfolios. PPLI requires considerable financial expertise to set up and manage. Policyholders must possess a certain level of financial maturity and significant risk tolerance, as well as an in-depth understanding of investment and tax laws, to take full advantage of the benefits of PPLI. This may make PPLI unsuitable for investors new to the world of high-net-worth investing. There are other costs when purchasing a PPLI, such as federal deferred acquisition fees, state premium taxes, structure fees, mortality fees, and administrative fees (M&E fees). As with all tax-advantaged structures, PPLI-based structures are subject to changes in law and changes in the interpretation and application of the relevant tax rules by the IRS. In addition, for high-net-worth clients, products such as premium-financed life insurance and irrevocable life insurance trusts exist as alternatives to PPLI. Therefore, these shortcomings of PPLI mean that it is not suitable for everyone given the ongoing tax and market uncertainty, which has resulted in a loss of market share.

Region Overview:

In 2022, the share of the Private Placement Life Insurance (PPLI) market in United States stood at 39.96%.

Company Overview:

The major players operating in the Private Placement Life Insurance (PPLI) market include Blackrock, Prudential, Zurich Insurance Group, Investors Preferred Life Insurance Company, Acadia Life Limited, etc. Among which, Blackrock ranked top in terms of sales and revenue in 2023.

Blackrock

BlackRock is one of the world's leading providers of investment, advisory, and risk management solutions. Lombard International Group is a leading provider of cross-border insurance-based wealth, estate, and succession planning solutions for upper-affluent, high-net-worth individuals, families, and institutions. Our success is built on our 30+ year track record in offering customized solutions that are comprehensive, robust, compliant, and proven.

Prudential

Prudential Financial (NYSE: PRU) was founded on the belief that financial security should be within reach for everyone, and over 140 years, we have helped our customers reach their potential and tackle life's challenges for now and future generations to come.

Segmentation Overview:

By type, IDF segment accounted for the largest share of market in 2022.

Application Overview:

By application, the High-net-Worth Individuals segment occupied the biggest share from 2018 to 2022.

Key Companies in the global Private Placement Life Insurance (PPLI) market covered in Chapter 3:

Investors Preferred Life Insurance Company
Blackrock
Zurich Insurance Group
Prudential
Crown Global
Acadia Life Limited

In Chapter 4 and Chapter 14.2, on the basis of types, the Private Placement Life Insurance (PPLI) market from 2018 to 2029 is primarily split into:

IDF
SMA

In Chapter 5 and Chapter 14.3, on the basis of Downstream Industry, the Private Placement Life Insurance (PPLI) market from 2018 to 2029 covers:

Family Offices
High-net-Worth Individuals
Others

Geographically, the detailed analysis of consumption, revenue, market share and growth rate, historic and forecast (2018-2029) of the following regions are covered in Chapter 8 to Chapter 14:

North America (United States, Canada)
Europe (Germany, UK, France, Italy, Spain, Russia, Netherlands, Turkey, Switzerland, Sweden)
Asia Pacific (China, Japan, South Korea, Australia, India, Indonesia, Philippines, Malaysia)
Latin America (Brazil, Mexico, Argentina)
Middle East & Africa (Saudi Arabia, UAE, Egypt, South Africa)