PPLI for Business Owners - Stop the Tax Trap
Introduction
You built a thriving business. That success is your wealth engine — but without sophisticated planning, it’s also where taxes quietly erode long-term results. Business profits are taxed as income, investment returns face annual tax drag, and selling your business can trigger a sizable capital-gains bill. Together, these create what we call the “tax trap cycle.”
Private Placement Life Insurance (PPLI) is a legal, widely used strategy among ultra-high-net-worth families that can materially reduce the friction of taxes on investment growth and improve estate liquidity. This guide explains how PPLI works, who benefits most, real client outcomes, and the steps you can take if you’re planning a business exit.
The Tax Trap Cycle
Every dollar your business earns may face multiple layers of taxation across time: first as business income, then again as investment gains, and ultimately when capital is realized at exit. Over decades this “tax drag” compounds — meaning money that could be compounding in private markets is instead paid to governments.
Key pain points business owners tell us:
Heavy income taxes on operating profits
Annual taxes on portfolio returns that reduce compounding
Large tax bills at sale or succession events causing forced asset sales or liquidity shortages
Distrust of generic advisor solutions and limited access to institutional investments
What Is PPLI — In Plain Terms
At a high level, PPLI is a life-insurance policy that holds separately managed investment portfolios inside an insurance wrapper. That wrapper allows investment returns to accumulate without annual income taxation while preserving liquidity and a life insurance death benefit for estate planning.
Important differences from retail life insurance:
Investor control: Eligible clients can direct investment strategies and access institutional managers (private equity, hedge funds, real estate strategies).
Tax treatment: Investment growth generally accumulates inside the policy without being taxed annually.
Design: PPLI’s insurance component is typically minimal relative to the policy’s investment function — it’s engineered primarily for tax efficiency and estate planning.
The Three “Tax Killers” Business Owners Face
Business owners commonly face three compounding wealth eroders:
Income taxes on operating profits — money earned that funds investment.
Portfolio taxes — annual taxes on dividends, interest, and realized gains inside taxable accounts.
Exit taxes — capital gains taxes at the time of sale or succession.
When combined, these can divert a very large share of growth that otherwise would compound for your family. PPLI is structured to reduce the impact of the second and third categories and, when used correctly, supports more tax-efficient management of sale proceeds.
How PPLI Works in Practice
Premium funding: You transfer after-tax business proceeds or other eligible assets into a PPLI policy.
Separate accounts: Those premiums are invested in a separately managed account, often overseen by institutional managers.
Inside buildup: Investment returns compound inside the policy without annual income taxation.
Access: Policyholders may access cash through tax-efficient distributions or policy loans (subject to design constraints).
Legacy & liquidity: The death benefit can provide liquidity for estate taxes or transfer wealth to beneficiaries in a structured way.
When PPLI Makes Sense
PPLI is most often appropriate for:
Business owners or practice partners with meaningful annual profits or concentrated stock positions.
Individuals planning an exit within several years who want to preserve as much sale proceeds as possible.
Families seeking multigenerational wealth transfer with privacy and creditor considerations.
Investors who can meet policy minimums and want access to institutional investment strategies.
Timing Matters — Why You Should Consider Acting Now
PPLI implementation requires time: policy design, manager selection, and underwriting can take 60–90 days or more. If you plan to sell in the near term, you should begin planning well before closing. Market conditions and regulatory treatment can change, so establishing a well-structured solution sooner gives flexibility and greater optionality at exit.
Compliance & Next Steps
PPLI is complex and must be tailored to your tax, legal and financial situation. If you’re curious whether PPLI fits your objectives, consider requesting our PPLI Strategy Workbook and scheduling a preliminary call to discuss your timeline and goals.
Important: This content is educational and does not constitute tax, legal or investment advice. Results depend on individual circumstances, investment choices and policy design. Consult your attorney and tax advisor before implementing any strategy.