Separating Investment and Insurance: Custody, Valuation, and Governance in PPLI

Private Placement Life Insurance (PPLI) has become a core tool for high‑net‑worth (HNW) families in the United States seeking tax‑efficient wealth transfer and asset protection. A defining feature of PPLI is the separation of the investment sleeve from the insurance wrapper — a structure that raises specific custody, valuation, and governance issues for fiduciaries, family offices, and advisors in jurisdictions such as New York, California (San Francisco / Los Angeles), Florida (Miami / Palm Beach), and nationwide U.S. clients.

This article explains how that separation works in practice, practical considerations for HNW estate planning in the U.S., typical costs and providers, and the compliance guardrails you must address.

How PPLI separates investment from insurance

PPLI unites a life insurance contract with a bespoke investment portfolio managed by an investment manager selected by the policy owner. The insurance company issues the policy (the wrapper), while the underlying assets (the sleeve) can be actively managed, including allocations to alternatives that are otherwise difficult to hold inside personal accounts.

Key benefits of this separation:

• Tax efficiencies: Policy cash value grows tax‑deferred; death benefit generally income‑tax‑free to beneficiaries under IRC rules (see IRC §7702) (U.S. Code — 26 §7702).
• Estate planning: Access to life insurance mechanics for wealth transfer and liquidity for estate taxes without direct ownership of underlying assets.
• Privacy & creditor protection: Contractual ownership and beneficiary structures can provide enhanced privacy and potential creditor protections depending on state law.

For a primer on how the policy wrapper enables alternative asset allocation, see: PPLI for Accredited Investors: How Policy Wrappers Enable Alternative Asset Allocation.

Custody: Who holds the assets?

Custody in PPLI is functionally different than in a standard brokerage account.

• Typical custody arrangements:

  • The insurer maintains legal control of the policy and often holds investments in a sub‑account or segregated account structure.
  • A third‑party custodian or trust bank may be appointed to hold title to underlying securities or alternative assets on behalf of the insurer’s separate account or the investment manager.
  • For illiquid alternatives (private equity, hedge funds, real estate), custodial and contractual arrangements must be carefully drafted to preserve policy status and to meet insurer and regulator requirements.

• Practical points:

  • Expect multiple parties: insurer, investment manager, independent custodian, distribution agent, and trustee (if used).
  • Confirm title and control language in contracts — the insurer’s general or separate account may require specific custody chain to maintain policy tax treatment.
  • In onshore U.S. PPLI, custodians are typically major trust banks or custodial arms of insurers located in policyholder hubs like New York, Boston, Newport Beach (Pacific Life), and Minneapolis (Allianz Life).

Valuation: NAV, illiquid assets, and valuation reporting

Valuation is central to behavior of the contract cash value, reporting to policyholders, and regulatory/compliance obligations.

• Valuation models you’ll encounter:

  • Daily NAVs for liquid mutual funds and separately managed accounts.
  • Periodic valuation (monthly/quarterly) for private funds and illiquid alternatives.
  • Independent appraisal or third‑party valuation firms for real assets, private equity, or structured credit.

• Best practices:

  • Require independent valuation policies in the investment management agreement.
  • Build a governance schedule that defines valuation frequency, independent oversight, and liquidity gates.
  • Document methodologies for complex instruments (e.g., fair value techniques for private placements).

• Reporting:

  • Insurers provide periodic statements showing policy cash value and internal sub‑account performance, but attorneys and trustees should request manager NAVs and third‑party appraisal reports for estate / tax filings.

For more on regulatory reporting and compliance across jurisdictions, reference: Structure and Compliance: FATCA, CRS, and Reporting for Private Placement Life Insurance.

Governance: Roles, fiduciary duties, and controls

Good governance aligns the insurer, policyowner, investment manager, and any trustees.

• Governance checklist:

  • Clear investment policy statement (IPS) incorporated by reference in policy documents.
  • Defined manager selection and due diligence criteria, review cadence, and replacement procedures.
  • Contractual KYC / AML / PE investor rules that meet both insurer and U.S. regulatory standards.
  • Escalation and dispute resolution clauses if valuation or custody conflicts occur.

• Select service providers with PPLI experience:

  • Major life insurers with PPLI desks: Pacific Life (Newport Beach, CA), Allianz Life (Minneapolis, MN), Prudential (Newark, NJ), Lincoln Financial Group (Radnor, PA), and John Hancock (Boston, MA).
  • Investment managers comfortable with trust‑like governance and reporting for life‑policy sleeves — this includes many large asset managers and family‑office managers.

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

Cost dynamics and sample pricing

Costs vary by insurer, manager, age of insured, and asset mix. Expect two primary cost layers:

1. Insurance & policy charges — cost of insurance (COI), mortality & expense charges, and policy administration.
2. Investment fees — manager fees, platform/wrap fees, and third‑party custodian fees.

Typical ranges (U.S., illustrative):

• Minimum premiums: commonly $1,000,000 or more for bespoke PPLI; some onshore programs accept $250,000–$500,000 for simplified or pooled structures.
• Insurance & wrap fees: 0.25%–1.00% annually (varies by insurer and age).
• Manager fees: 0.50%–1.50% for liquid strategies; private equity or hedge funds add manager carried interest or fund fees (e.g., 1%–2% + 10%–20% carry) at the underlying fund level.
• Total all‑in cost: commonly ranges from 0.75%–3.0%+ depending on strategy complexity and illiquidity.

Examples of U.S. providers and market presence:

• Pacific Life: active PPLI platform — corporate HQ Newport Beach, CA.
• Allianz Life: PPLI capabilities via Allianz Life Insurance Company of North America — Minneapolis, MN.
• Prudential: PPLI and private placement solutions — Newark, NJ.
• Lincoln Financial: tailored high‑net‑worth life products — Radnor, PA.

Note: exact pricing and minimums should be confirmed with each insurer; platforms and program availability can vary by state and regulator (New York has specific approvals and product structures).

Comparative snapshot: Custody, Valuation, Governance

Risk, compliance, and state considerations

• U.S. state insurance laws and the insurer’s domicile matter — New York domestic insurers often require separate product structures and higher compliance thresholds.
• Ensure KYC / AML, FATCA/CRS (for cross‑border families) and PE investor rules are embedded in onboarding. See: Mitigating Regulatory Risk in PPLI: KYC, PE Investor Rules, and Anti‑Money‑Laundering Controls.
• Work with life‑insurance counsel, tax advisors, and valuation specialists when using illiquid alternatives inside PPLI to avoid jeopardizing tax treatment.

Implementation checklist for U.S. HNW clients

• Confirm suitability and minimum premium requirements with targeted insurers (Pacific Life, Allianz, Prudential, Lincoln, John Hancock).
• Draft an IPS and manager selection policy ahead of policy issuance.
• Negotiate custody and valuation reporting cadence in manager and custodian agreements.
• Obtain independent valuation procedures for illiquid assets.
• Coordinate estate, income tax, and elder law counsel for beneficiary and trust design.

For further reading about tradeoffs between onshore and offshore structuring choices, see: Onshore vs Offshore PPLI: Jurisdictional Tradeoffs for International High Net Worth Families.

Sources and further reference

• Investopedia — Private Placement Life Insurance (PPLI) overview: https://www.investopedia.com/private-placement-life-insurance-ppli-5173555
• U.S. Code — Internal Revenue Code §7702 (definition and tax treatment of life insurance contracts): https://www.law.cornell.edu/uscode/text/26/7702

If you plan to structure PPLI in New York, California, Florida, or nationally, coordinate insurer selection, custody arrangements, and valuation governance early — these are the levers that preserve the policy’s tax and estate benefits while enabling alternative asset strategies.