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What is Private Placement Life Insurance?

Article Details
  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 31 January 2020
  • Copyright Protected:
    2003-2020
    Conjecture Corporation
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Private placement life insurance is a type of coverage that is offered privately and is not available through any form of public offering. Typically, the coverage is extended as variable life insurance that can be used to offset taxes on both regular income and any earnings generated in the form of capital gains. As such, this particular approach to life insurance coverage can be a viable component in planning for retirement as well as aiding in general wealth management during the working years.

In many instances, the issuer of the private placement life insurance plan is free to invest the premiums collected from policyholders in whatever strategy is anticipated to produce returns that help to increase the value of those policies. There are usually some type of checks and balances put in place that aid in evaluating whether those investments are in the best interests of the policyholders, and some governments do place some restrictions on the type of investments that can be made. For example, the insurer may be free to invest in real estate deals, hedge funds, or any type of derivative contracts, but be prevented by law from engaging in currency trading.

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When managed effectively, a private placement life insurance plan can provide a great deal of financial security. Some plans of this type accrue cash value, allowing the policyholder to borrow against that value under certain circumstances. In the event that the policyholder should pass away before the borrowed amount is repaid, any outstanding balance is deducted from the amount paid to beneficiaries. This creates a situation in which the policy can provide some relief during a financial crisis and still serve to help survivors manage the end of life expenses of the policyholder without the need to use their own financial resources.

With private placement life insurance, policyholders have access to a wide range of benefits. The actual scope of advantages will vary somewhat from one country to another, depending on the tax laws currently in effect. One common benefit has to do with creating a tax exemption with certain types of income. This includes interest earned from bond issues as well as dividends earned on different types of investments.

Another advantage to private placement life insurance is that the policies are often considered exempt from consideration as an asset when the policyholder is sued by a creditor or is a defendant in some type of civil suit. This helps to ensure that even if other assets are wiped out as a result of the action, the benefits of the life insurance plan are still intact and will be available to the holder as well as his or her beneficiaries. The ability to retain these benefits even when other assets are no longer available can serve as the basis for recovery from the crisis, and make it possible for the policyholder to rebuild his or her assets over time.

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