Modern PPLI Design and Access to Your Capital

Most advisors underutilize private placement life insurance (PPLI) in an effort to solve a liquidity problem that doesn’t exist. Said another way, advisors under-allocate their client’s investment portfolio to PPLI because they perceive there to be restrictions on accessing the account value inside the policy.  

There is an understandable reluctance to place too much capital inside a life insurance policy because traditional insurance experience has taught clients and advisors that once money goes in, getting it back may be difficult or expensive. With many retail policies, that concern is entirely rational. Upfront expenses can be significant, surrender charges may last for years, and policy loans are often expensive and viewed as something to use reluctantly.

Modern PPLI is Built Very Differently

PPLI is institutionally priced and designed without the large upfront commissions and surrender charges associated with traditional retail insurance. Policy loans are nearly frictionless with costs as low as 5 basis points. As a result, between 90% and 95% of the account value can be accessed by the policy holder on day one, subject to the liquidity of the underlying investments held inside the policy. 

In accessing the policy account values, the carrier distributes cash, not securities. If a PPLI portfolio owns publicly traded securities or other readily marketable investments, cash can be raised quickly. If it owns private funds with gates, lockups or limited redemption windows, access will naturally be constrained by those investments. This is no different than how an investor would experience these same restrictions in a taxable account. 

To reiterate, policy access and investment liquidity are two different questions. A thoughtfully designed PPLI portfolio should take both into account.

Two Ways to Access Capital

There are two ways to access account values inside a PPLI policy: withdrawals and policy loans.

Withdrawal is the simpler mechanism. Policy basis can be withdrawn without current income tax, but the withdrawal permanently reduces policy value and the money cannot be put back into the policy at a later date.

Policy loans are different. The policyowner borrows against the policy’s cash value – including all gains inside the policy, with the policy itself serving as collateral. There is no traditional credit underwriting or outside lender approval. The loan may be repaid, partially repaid or remain outstanding, although unpaid interest accrues and the loan reduces both available cash value and death benefit dollar-for-dollar.

The economics of policy loans can be surprisingly attractive. In the current marketplace, between 90% and 95% of the account value can be accessed, with net annual loan costs ranging from 5 to 20 basis points among leading carriers.1

All These Factors Change the Liquidity Conversation

Assume a client needs several million dollars of liquidity ten years from now. The client has sufficient assets in both a taxable portfolio and a PPLI policy.

The familiar response may be to sell investments in the taxable account and leave the insurance policy untouched, but familiarity does not necessarily make that economically preferable.

Selling appreciated investments can create capital gains and possibly ordinary income taxes and reduce the amount invested, interrupting future compounding. Accessing capital through a policy loan may incur borrowing costs while seeking to leave the broader tax-advantaged structure intact.

This is a materially different way to think about PPLI. It moves the policy from the category of last-resort liquidity to one of several balance sheet resources that should be evaluated based upon cost, timing, tax consequences, and long-term impact.

What This Means for Allocation

Allocation may be the most important decision for advisors. 

If a client believes every dollar contributed to PPLI is effectively unavailable, the rational response is to limit the allocation. The client will maintain a larger taxable portfolio simply to preserve perceived flexibility. 

If a meaningful portion of the PPLI account remains accessible – and can be accessed more efficiently than the same capital held in a taxable account – the allocation question changes. 

Instead of asking “How little can the client afford to lock up in PPLI?” the better question is, “How much can we put in this accessible, tax-preferred location?”  

The answer will be different for every family. Near-term spending needs matter. Investment liquidity matters. Policy design and carrier loan provisions matter. And the administration of policy loans requires ongoing monitoring.  

These considerations argue for thoughtful design and ongoing servicing – not necessarily for a smaller allocation. 

For clients who are good candidates for PPLI, the objective should be to determine the appropriate location for capital across the entire balance sheet. If assets can compound more tax-efficiently inside PPLI while remaining available for future needs, maintaining a large taxable allocation solely for “liquidity” will therefore carry a significant and unnecessary income tax cost – potentially amounting to tens of millions of dollars. 

Once advisors and clients begin to view it that way, the amount of capital that is decided to be allocated inside the PPLI structure may be considerably greater than they initially assumed. 

*This material is provided for informational purposes only and is not intended to provide specific legal or tax advice. Always consult an attorney or qualified tax professional regarding your specific situation.

1. Figures based on leading institutional PPLI carrier provisions as of 2026. Actual loan spread and liquidity options depend on policy design, product selection, and underlying asset liquidity.