Senate Finance Committee Democrats released a
The committee staff’s investigation found that PPLI policies are actively promoted to wealthy
investors as a way to eliminate income, gift and estate taxes. They received copies of pitch decks from major PPLI providers promoting their products to ultra-high net worth people, telling them how to make tax-free investments in hedge and private equity funds.
“Across the industry, PPLI providers actively pitched clients on using PPLI policies as a tax-advantaged wrapper for the purpose of investing in a wide range of asset classes and bypassing taxes on investment gains and the transfer of wealth to their heirs,” said the report.
The probe found that PPLI represents only 0.003% of all individual life insurance policies in the U.S., often out of reach of typical taxpayers. The IRS faces obstacles in enforcing investor control rules to prevent the abuse of tax-advantaged products like PPLI, as there’s no requirement under current law to report ownership of PPLI on a tax return. That enables wealthy investors to use the insurance to shield their investments in alternative assets from IRS examiners and auditors.
“I’m a strong defender of life insurance as a source of financial security for hardworking American families and retirees, but that’s not what’s going on with these tax-dodging private placement policies that are available only to the ultra-wealthy,” said Senate Finance Committee chairman Ron Wyden, D-Oregon, in a statement Wednesday. “When you subject these policies to even the slightest bit of scrutiny, it’s clear that this is just a tax shelter for the investments of the mega-rich masquerading as life insurance. None of this is available to middle-class Americans. As is often the case with our Tax Code and the ultra-wealthy, the scandal here is what’s legal. The companies weren’t even trying to hide the fact that their PPLI policies were tax dodges for the very top — that’s precisely how they were promoted. It’s obvious that this is an abuse of the rules that are intended to protect typical American families, so Congress must change the law to put a stop to it.”
Sarah Silbiger/Bloomberg
His office contends legislation is needed to increase oversight of PPLI and deter abuse of the insurance products as tax avoidance by the ultra wealthy, and that the IRS should increase scrutiny of the PPLI industry’s compliance with investor control rules.
According to information obtained by the Senate Finance Committee from seven major PPLI carriers, approximately 3,000 Americans have PPLI policies with an average face amount (death benefit) of nearly $13 million. In the case of the three PPLI market leaders, those amounts are much higher. For Prudential Insurance Company of America, Lombard International and Zurich Insurance Group, the average face amount of PPLI policy was $27.8 million, $17.6 million and $18.8 million, respectively. For one specialized PPLI company, Investors Preferred, the average face amount was $38 million. The committee also received information about the average annual income and net worth of PPLI clients. For one major PPLI carrier, the average annual income of a client was more than $7 million and the average net worth was over $100 million.
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