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Let’s be honest — life insurance isn’t typically considered a sophisticated financial strategy.

Sure, life insurance can be a useful risk management tool. But it’s also an area notorious for high-pressure sales tactics and unscrupulous brokers.

This reputation isn’t wholly unjustified — but it’s also not the full story.

As it turns out, life insurance can be an enormously powerful investing vehicle.

In fact, strategies like ​Private Placement Life Insurance​ (PPLI) are arguably one of the best-kept secrets of the ultra-wealthy, facilitating tax-free gains on lucrative strategies like venture capital and private equity.

Today, I’m going to show you why PPLI can be so powerful — and how you might be able to access it through ​Arta Finance​.

Arta is a digital wealth platform bringing the type of financial strategies used by billionaires to a much wider pool of investors.

Previously, we’ve explored Arta’s ​structured products​ offering, and reviewed their ​platform as a whole​.

But today’s issue is all about PPLI and investing through life insurance.

I'll explain:

Let’s go 👇

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Note: A lot of the tax discussion today is US-specific, and the rules may be different in your location. As always, nothing here is tax, legal, or financial advice! This issue is sponsored by our friends at Arta, with research & due diligence performed by Brian Flaherty and the Alts team. As always, we think you'll find it informative and fair.

How to invest with life insurance

In an article last year, we discussed some of the basics of life insurance policies in the context of ​life settlement investing​.

Here’s a quick recap on how these contracts work:

But there’s another aspect of insurance that we didn’t talk about: the cash value of a policy.

Permanent life insurance contracts often come with a cash value attached. Think of it like an investment account bolted on to the insurance contract.

For ‘cash value life insurance,’ a portion of each premium payment goes toward funding this investment account — with the rest going toward coverage and fees.

What do cash value accounts invest in?

While the cash value essentially works like an investment account, that doesn’t mean you can buy whatever assets you’d like.

There are different types of retail life insurance contracts. Each type focuses on a different class of assets:

In between these two, there are different options with distinct risk-reward characteristics.

No matter what type of contract you select, the cash value will grow tax-free as long as it remains in the policy — similar to an IRA.

Traditionally, the biggest benefits of a life insurance policy accrue after the policyholder passes away (namely, the death benefit to beneficiaries).

But we can think of the cash value as providing a living benefit to the policyholder. You can utilize this cash value by:

This last one is the most intriguing option.

Remember, borrowing is generally not taxable! When combined with the cash value’s tax-free growth, that opens up some intriguing possibilities to (legally) avoid taxes entirely.

Keep that in mind — in a moment, I’ll show you why it’s so important.

Who is life insurance investing right for?

At this point, I want to make something clear: In many situations, life insurance investing doesn’t make much sense.

The cost of insurance, commissions, and the difficulty of accessing funds in retirement means that cash value life insurance products aren’t always a great way to invest.

Instead, term life insurance plus standard tax-advantaged investing is usually a better bet.

But this isn’t universally true.

For example, if you’re a high earner with kids in a high-tax state, the tax advantages of a variable universal life policy can potentially be quite beneficial.

And in a few specific cases, investors can even access a particularly lucrative form of life insurance — Private Placement Life Insurance.

Private Placement Life Insurance with Arta

As the name suggests, PPLI is not something you can access through a retail insurance broker.

This is a highly customized structure tailored to individual goals.

To access PPLI, you’ll have to work with an advisor that offers sophisticated wealth management capabilities — like ​Arta Finance​.

The main thing that separates PPLI from retail life insurance is that it’s explicitly designed as an investment vehicle — it just uses life insurance as a wrapper.

Here’s how it works:

Although PPLI is technically a life insurance contract, the actual insurance component is kept small ​while still complying with IRS rules​.

While individual situations vary, the total annual costs embedded in PPLI plans, including the cost of insurance, is typically ~1% per year.

That’s a stark difference from retail life insurance products, which often come with inefficient investment exposure due to the high cost of insurance and heaped upfront commissions.

There’s one key benefit that can make all this structuring worthwhile: tax-advantaged investing.

What are the tax advantages of PPLI?

To analyze the potential tax benefits of PPLI, it helps to think in terms of three areas: contributions, growth, and distributions.

1) Contributions

The cash paid into a PPLI is technically considered a ‘premium.’ But it’s more helpful to think of it as a post-tax contribution to a retirement account.

This is functionally similar to a Roth IRA. The key difference, however, is that there are no contribution limits to a PPLI.

You can contribute as much as you’d like to this account — you just need to structure it properly beforehand.

2) Growth

PPLI contributions can be used to invest in both private and public assets.

Since investments like private equity or hedge funds are generally not very tax-efficient, however, it’s often better to focus on private assets in tax-advantaged accounts.

Like an IRA or 401(k), PPLI offers tax-free growth on investments — making them an ideal place to house private market assets.

And since you can sell assets without triggering capital gains, PPLI features greater allocation flexibility than taxable accounts.

PPLI also offers greater tax-efficiency in terms of investment management fees, which are paid on a pre-tax basis directly by the insurance company.

3) Distributions

Finally, when it comes to accessing the money, you can generally distribute PPLI funds tax-free by borrowing against the assets.

Now, this isn’t technically a distribution. The money doesn’t actually leave your account, although assets do need to be liquidated to support the loan (this is not a margin loan — an important distinction).

The fact that this isn’t a distribution is what makes it so tax-efficient. Here’s why:

And unlike 401(k)s or IRAs, there are no penalties, minimums, or age limitations on borrowing.

While the interest rate on policy loans varies by insurer, it’s often rock-bottom. Prudential, for instance, offers loans as low as 5 basis points.

And don’t forget — any death benefit left over after loans are settled will be distributed to beneficiaries.

This death benefit is generally income tax-free. And if the PPLI policy is owned by an ​Irrevocable Life Insurance Trust​, it can even be estate tax-free as well.

As a result, PPLI can potentially be a powerful tool to both avoid taxes in your own lifetime and leave a tax-efficient legacy to your heirs.

Who is PPLI right for?

These advantages are attractive. However, PPLI is not suitable for everyone.

The most fundamental reason why is that PPLI policies are generally only available to Qualified Purchasers (QPs).

QPs are like ​super-accredited investors​. You need at least $5 million in investments (excluding primary residence) to qualify.

This isn’t just because PPLI plans typically require at least $1 million in total premiums (usually paid over 5-7 years). There are also fundamental legal restrictions around who can invest in such a complex structure.

With that said, other types of variable universal life insurance that share some of PPLI’s tax advantages are available to non-QPs.

Arta can help you explore these options and determine if one might be a good fit for your financial goals.

Even if you’re a QP, however, investing in a PPLI structure only makes sense as long as you also check a few other boxes:

But these factors really just scratch the surface. To truly decide whether a PPLI is right for you, you’ll want to evaluate your situation directly with a trusted advisor — like Arta.

Investing in PPLI with Arta

Unlike most of the industry, Arta doesn’t compensate their advisors through commissions.

And as we’ve discussed previously, Arta takes a holistic wealth management approach. Insurance is just a ​small part of what they do​.

These factors mean the Arta team is uniquely positioned to help evaluate whether PPLI makes sense for you — they’re not incentivized to push products for the sake of making a sale.

If PPLI does make sense in your situation, however, you can set up your personalized plan directly through Arta. Here’s a step by step look at how it works:

Arta offers two legally compliant pathways to manage PPLI investments, each of which comes with distinct minimums:

Interested in learning more about whether PPLI can help you access tax-advantaged growth?

Arta is running educational sessions both online and in-person in partnership with leading private fund managers. These sessions are in April and May — sign up now so you don’t miss your chance to register!

Confirm your interest below and a member of the Arta team will reach out soon.

Closing thoughts

For the time being, PPLI remains a fairly exclusive financial strategy. Only ​about 1 in 50 households​ in the US are Qualified Purchasers.

But I don’t expect this exclusivity to last forever.

In years past, PPLI was quite literally only available to billionaires and ultra-wealthy family offices.

Over time, however, strategies like this have gradually become available to more investors — in large part because companies like Arta have deliberately fostered increased accessibility.

Even if you don’t qualify for PPLI today, that could change in the future as investment minimums and accreditation requirements evolve.

Finally, it’s worth mentioning that the PPLI strategy remains politically and legally controversial.

​In a report early last year​, a Democratic US Senator lambasted PPLI:

“[It's] an ultra-niche financial product” exploited by the super-wealthy to avoid taxes.

Previously, a law professor ​also argued​ that PPLI is “too good to be true” and based on overly lenient IRS rulings.

But until the IRS updates its guidance or Congress passes new legislation, PPLI is here to stay.

And frankly, with the current political atmosphere in the United States, it seems unlikely for either of these things to happen anytime soon.

Still, these risks make it essential to work with an experienced, compliance-focused advisor to implement a PPLI strategy. This is not an area for a DIY approach.

That's it for today.

Come chat with me in the ​Alts Community​.

See you next time,
Brian

Disclosures from Alts

This issue is a sponsored deep dive, meaning Alts has been paid to write an independent analysis of Arta PPLI. Artahas agreed to offer a deep look at its business, offerings, and operations. Arta is also a sponsor of Alts, but our research is neutral and unbiased. This should not be considered financial, legal, tax, or investment advice, but rather an independent analysis to help readers make their own investment decisions. All opinions expressed here are ours, and ours alone. We hope you find it informative and fair.

Disclosures from Arta

This article is sponsored by Arta Finance Inc. Investment advisory services provided to Arta clients by Arta Finance Wealth Management LLC, an SEC registered investment adviser. Insurance brokering services provided to Arta clients by Arta Finance Insurance LLC. Alts.co is not a client of Arta and has been provided cash compensation for the endorsement. The opinions expressed are based on the author's knowledge of Arta's services and are not indicative of future results. This article is for informational purposes only and should not be considered investment advice or a recommendation to buy or sell any particular security.

Tax-free distributions may not be available for all insureds in all situations. Please discuss with your tax advisor to see if a PPLI product is right for your individual situation.