KEY POINTS
- Investors, taxable and tax-exempt, U.S. domestic and offshore, seek not just absolute and risk-adjusted returns to optimize their total investment portfolios, but also do so on a tax-adjusted basis.
- Republic Investment Group, LLC (“RIG”, or the Firm), is acutely aware of the general and specific tax exposures that its investments have and is putting in place investment vehicles to accommodate the needs of investors to reduce or eliminate the impacts of taxes on their investments.
- There are various strategies and structures that can accommodate investors' tax management of their investments. RIG will focus on Insurance Dedicated Funds (“IDFs”) and using Private Placement Life Insurance (“PPLI”) and Private Placement Variable Annuities (“PPVAs”).
Insurance Dedicated Funds (“IDFs”)
An Insurance Dedicated Fund is a type of investment vehicle that is primarily designed to serve as a tax-efficient investment option for individuals who own variable annuities or variable life insurance policies. IDFs are also sometimes referred to as "separate accounts" or "sub-accounts" within the insurance contract.
Some key characteristics and features of Insurance Dedicated Funds include:
- Tax Advantages: IDFs offer tax advantages to policyholders. Gains within these funds can grow tax-deferred, meaning that policyholders do not have to pay taxes on the earnings until they make withdrawals or distributions from the variable annuity or life insurance policy.
- Asset Allocation: Policyholders can typically choose from a range of investment options within the IDF, such as stocks, bonds, or mutual funds. This allows them to tailor their investment strategy to their risk tolerance and financial goals.
- Customization: IDFs may offer a degree of customization in terms of investment choices, allowing policyholders to select specific funds or asset classes that align with their investment objectives.
- Insurance Component: IDFs are usually linked to an insurance policy, either variable annuities or variable life insurance. The investment performance of the IDF can impact the policy's cash value or death benefit, depending on the type of policy.
- Risk and Reward: As with any investment, there are risks associated with IDFs. The value of investments within the IDF can fluctuate based on market conditions, and policyholders may experience gains or losses depending on their investment choices.
- Fees and Charges: Like other investment products, IDFs may have fees and charges associated with them. These can include management fees, administrative fees, and mortality and expense charges for insurance policies.
- Diversification: IDFs often offer a range of investment options, which can help policyholders diversify their portfolios and reduce risk.
- Liquidity: Policyholders may have the ability to make withdrawals or switch between investment options within the IDF, but there may be restrictions and penalties associated with such actions.
Private Placement Life Insurance (“PPLI”)
What is PPLI?
PPLI is commonly used as a wealth planning and asset protection tool for high-net-worth individuals and families. It offers a way to invest in a diversified range of assets within a tax-efficient insurance wrapper.
PPLI) is a specialized form of life insurance designed for high-net-worth individuals and institutional investors. It combines elements of life insurance with the benefits of an investment vehicle.
PPLI is complex and often involves high costs, so it is essential for potential policyholders to thoroughly understand the structure and benefits of PPLI and consult with financial and tax advisors to determine if it aligns with their overall financial strategy.
How is PPLI Structured and Implemented?
PPLI is structured as a variable life insurance policy. Here's how PPLI typically works:
Policyholder: The individual or institution that purchases the PPLI policy.
- Insurance Company: A life insurance company that provides the PPLI policy to the policyholder.
- Premiums: The policyholder pays premiums to the insurance company. These premiums can be significant and are generally paid upfront or over a relatively short period.
Why is PPLI Used? – Key Advantages
The policyholder can allocate the cash value of the policy to a range of investment options, such as mutual funds, hedge funds, private equity, and other alternative investments. It can also be used for asset protection.
Asset Protection:
PPLI can offer significant asset protection benefits, however, the effectiveness of these protections may vary depending on the jurisdiction and specific circumstances
Private Placement Variable Annuities (“PPVAs”)
What are PPVAs?
PPVAs are a type of investment product that combines elements of both variable annuities and private placements. Like traditional variable annuities, PPVAs offer the potential for investment growth by allowing policyholders to invest in a selection of underlying investment options. However, PPVAs differ from standard variable annuities in that they are not registered with the U.S. Securities and Exchange Commission (SEC) and are not offered to the general public.
How are PPVAs Structured and Implemented?
PPVAs are structured and implemented in a manner that caters to accredited investors, institutional investors, and high-net-worth individuals. The structure of PPVAs combines features of traditional variable annuities with private placements, offering a customized investment approach and greater flexibility.
Why are PPVAs Used? – Key Advantages
Key advantages of PPVAs include:
- Limited Availability: PPVAs are only available to accredited investors, institutional investors, or high-net-worth individuals. These products are typically sold through private placements, which are offerings that do not need to be registered with the SEC under certain exemptions.
- Customization: PPVAs often offer a more extensive range of investment options compared to publicly available variable annuities. This customization allows investors to choose from a broader array of alternative investments, such as hedge funds, private equity funds, and real estate funds.
- Reduced Regulatory Disclosure: Since PPVAs are not publicly registered, they do not have the same level of regulatory disclosure requirements as traditional variable annuities. This can make it more challenging for potential investors to access detailed information about the product.
Asset Protection:
PPVAs are often considered by high-net-worth individuals and investors as a potential tool for asset protection due to certain features they offer. It is crucial to understand that asset protection strategies can vary depending on the specific laws and regulations in your jurisdiction
What are PPVAs?
PPVAs are a type of investment product that combines elements of both variable annuities and private placements. Like traditional variable annuities, PPVAs offer the potential for investment growth by allowing policyholders to invest in a selection of underlying investment options. However, PPVAs differ from standard variable annuities in that they are not registered with the U.S. Securities and Exchange Commission (SEC) and are not offered to the general public.
How are PPVAs Structured and Implemented?
PPVAs are structured and implemented in a manner that caters to accredited investors, institutional investors, and high-net-worth individuals. The structure of PPVAs combines features of traditional variable annuities with private placements, offering a customized investment approach and greater flexibility.
Why are PPVAs Used? – Key Advantages
Key advantages of PPVAs include:
- Limited Availability: PPVAs are only available to accredited investors, institutional investors, or high-net-worth individuals. These products are typically sold through private placements, which are offerings that do not need to be registered with the SEC under certain exemptions.
- Customization: PPVAs often offer a more extensive range of investment options compared to publicly available variable annuities. This customization allows investors to choose from a broader array of alternative investments, such as hedge funds, private equity funds, and real estate funds.
- Reduced Regulatory Disclosure: Since PPVAs are not publicly registered, they do not have the same level of regulatory disclosure requirements as traditional variable annuities. This can make it more challenging for potential investors to access detailed information about the product.
Asset Protection:
PPVAs are often considered by high-net-worth individuals and investors as a potential tool for asset protection due to certain features they offer. It is crucial to understand that asset protection strategies can vary depending on the specific laws and regulations in your jurisdiction
The information above is a summary of the tax benefits of insurance-related investment vehicles and is not complete. Republic Investment Group has partnered with industry-leading experts to create and manage an Insurance Dedicated Fund, and the Firm welcomes the opportunity to speak with interested and qualified investors. To learn more, schedule a consultation.
Republic Investment Group is a private equity real estate fund manager. The Firm is committed to investing in impact in its communities through efficient, clean energy, fostering economic development, and diversity of its employee and external contractor bases and through its affiliated charitable foundation, Everlast Life Foundation, providing mission-critical disaster relief assistance to families in need within its communities.
