Selecting Managers and Underwriters for PPLI: Due Diligence for Sophisticated Investors

Private Placement Life Insurance (PPLI) is a specialized vehicle used by high-net-worth (HNW) families and accredited investors in the United States to combine insurance benefits with bespoke investment strategies — often including alternative and illiquid assets — while seeking estate tax efficiency and tax-deferred growth. Choosing the right investment manager(s) and insurance underwriter/carrier is critical to policy performance, regulatory compliance, and long-term estate outcomes. This guide focuses on US-market considerations (New York, California, Florida, Texas and national carriers) and gives a practical due-diligence checklist for sophisticated investors and their advisors.

Why manager and underwriter selection matters

• Investment governance governs ability to hold alternatives (private equity, hedge funds, direct loans) inside a policy wrapper.
• Contract design and pricing (carrier crediting rates, product fees, mortality/loadings) materially affect net returns.
• Regulatory and reporting obligations (state insurance law, FATCA/CRS reporting, KYC/AML) vary with carrier structure and jurisdiction.
• Custody and valuation determine auditability and estate transfer ease.

See related technical topics: Separating Investment and Insurance: Custody, Valuation, and Governance in PPLI, Onshore vs Offshore PPLI: Jurisdictional Tradeoffs for International High Net Worth Families, and PPLI for Accredited Investors: How Policy Wrappers Enable Alternative Asset Allocation.

Key selection criteria — managers and underwriters

For Investment Managers (asset managers / PMs)

• Experience with PPLI structures and separate-account administration.
• Track record on illiquid/alternative asset classes and ability to provide investor-level reporting suitable for life-insurance audits.
• Fee structure (management fee + carried interest if applicable) and ability to offer institutional pricing inside a separate account.
• Custody arrangements — independent custodian (e.g., BNY Mellon, State Street, Northern Trust) and clear segregation of policy assets.
• Valuation processes and liquidity management for death benefit and policy-level cash flow needs.

For Insurance Underwriters / Carriers

• Financial strength and ratings (A.M. Best, S&P, Moody’s).
• Product flexibility — ability to write minimum premium sizes you require, riders, and onshore vs. offshore choices.
• Policy expense/loadings — mortality charges, cost of insurance, administrative fees.
• Experience with compliance (KYC/AML, FATCA/CRS, state filing history — especially important for New York and California clients).
• Service model — in-house law/operations support for policy loans, surrenders, beneficiary transfers.

Typical market economics (U.S., 2024 market ranges)

Note: Exact pricing varies by carrier, investment strategy and client profile. Typical observed ranges for PPLI in the U.S.:

• Minimum single-premium thresholds: $2,000,000 – $10,000,000 (many providers expect $5M+ for broad alternative access)
• Manager (investment) fees: 0.50% – 2.00% management fee; private-equity-style carry where applicable
• Insurance carrier policy loadings & admin fees: 0.25% – 1.00%
• Custody & trustee fees: 0.05% – 0.40%
• Due diligence / implementation/setup legal & structuring costs: $25,000 – $150,000 (one-time)

Sources and primer: Investopedia’s overview of PPLI and regulatory fundamentals provides accessible context for these ranges and structure: https://www.investopedia.com/terms/p/private-placement-life-insurance-ppli.asp. For state-level oversight and product considerations see the National Association of Insurance Commissioners (NAIC) resources: https://www.naic.org/.

Sample comparison: managers and carriers (illustrative)

Important: check the carrier’s rating and product-specific prospectus. Carriers change product availability by state and by distribution channel (broker-dealer vs. private placement networks).

Due diligence checklist — a step-by-step approach

1. Corporate and financial diligence (carrier & manager)

   • Obtain carrier financials, A.M. Best/S&P ratings, reinsurance arrangements.
   • Review manager audited performance, regulatory history, and key-person exposure.

2. Product-document review

   • Read policy contract, separate-account agreements, side letters, and trust/ownership documentation.
   • Confirm permitted investments, withdrawal/loan mechanics, and death-benefit mechanics.

3. Legal, tax & compliance review

   • Confirm policy structure with counsel on IRC 7702, transfer-for-value rules, and state insurance compliance.
   • Confirm FATCA/CRS and U.S. tax reporting obligations.
   • Verify KYC/KYB and AML controls; ask for party-level onboarding timelines.

4. Operational and custody validation

   • Validate independent custodian, reconciliation frequency, NAV reporting cadence.
   • Confirm valuation methodology for private assets and third-party appraisal conventions.

5. Pricing and total-cost modeling

   • Build a 10–20 year net-of-fees projection including mortality charges, manager fees, custodian fees, and policy charges.
   • Test stress scenarios: low-return environment, liquidity needs, and large death benefit event.

6. Service-level and escalation

   • Negotiate service-level agreements (reporting frequency, distribution of proceeds on insured events).
   • Document post-issuance governance: quarterly reviews, auditor access, and change-of-manager provisions.

Interview questions to ask managers and carriers

• Managers: “Describe three PPLI-dedicated accounts you run today — asset mix, liquidity schedule, valuation governance.”
• Managers: “How do you manage side-pocket or illiquid allocations inside a policy to meet death benefit and liquidity needs?”
• Carrier: “What are your state-licensing footprints (e.g., NY, CA, FL, TX)? Provide recent examples of similar policies issued.”
• Carrier: “Provide a full fee schedule and examples of net returns for two benchmarked structures.”
• Both: “Share your KYC/AML process and average onboarding timeline (from term sheet to policy issue).”

Red flags to watch for

• No independent custodian or limited reporting transparency
• Manager unwilling to provide audited track record or references
• Carrier with weak financial rating or a record of delayed claims/benefits processing
• Excessive minimum liquidity restrictions that conflict with family cash needs

Structuring & negotiation tips

• Negotiate manager fee breaks at higher AUM bands inside the policy.
• Ask for defined valuation windows and death benefit NAV locks.
• Require straightforward, documented transfer processes for beneficiary transfers or estate settlement.
• Build in an annual governance review clause to reassess manager performance and compliance.

Conclusion

For HNW estate planning in the U.S. (New York, California, Florida, Texas and nationwide), selecting the right PPLI manager and underwriter is both a fiduciary and strategic decision. Use a disciplined due-diligence process that combines financial-strength analysis, contractual scrutiny, operational validation, and transparent pricing modeling. When executed properly, a well-underwritten PPLI policy can be a powerful tool for tax-efficient wealth transfer and alternative asset allocation inside a life-insurance wrapper.

Further reading on complementary topics:

• PPLI Policy Design: Minimum Premiums, Rider Options, and Liquidity Considerations
• Structure and Compliance: FATCA, CRS, and Reporting for Private Placement Life Insurance

References

• Investopedia — Private Placement Life Insurance (PPLI): https://www.investopedia.com/terms/p/private-placement-life-insurance-ppli.asp
• National Association of Insurance Commissioners (NAIC): https://www.naic.org/