Democrats blast life insurance plans as tax breaks for rich

Democrats on the Senate Committee on Finance took aim at “private placement life insurance” (PPLI) in a report released Wednesday, saying the specialized plans amounted to tax breaks for the wealthiest Americans.

The report, authored by Chair Ron Wyden (D-Ore.), argued that PPLI policies are promoted to “ultra-high net worth clients” to avoid billions of dollars in taxes.

Though legal, Wyden said the plans are offering $40 billion in policies to a select few thousand of the highest net worth individuals in the country. Approximately 3,000 Americans have PPLI policies, with the “average face amount,” or death benefit, of nearly $13 million.

“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 only available to the ultra-wealthy,” Wyden said in a statement.

“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.”

The 18-month investigation found that PPLI policies are not available to middle-class Americans because premium commitments require millions of dollars, along with high fees, administrative costs and other statutory requirements, The Washington Post reported.

There is no requirement for people to report ownership of PPLI on their tax returns, which allows people to use it as a shield for “lucrative investments in alternative assets” and avoid scrutiny from the Internal Revenue Service (IRS), the report found. It said the only way the IRS can detect PPLI policies is if it comes up in an audit.

The leading PPLI providers are Prudential Insurance Company of America, Lombard International and Zurich Insurance Group, where the average PPLI policy was $21.4 million.  

The report said the policies are actively promoted to wealthy Americans as a way for them to eliminate income, gift and estate taxes. Wyden called it a “buy, borrow, die” strategy used by the top 0.1 percent of investors to “avoid paying their fair share in taxes.”

“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,” Wyden’s statement said. “It’s obvious that this is an abuse of the rules that are intended to protect typical American families.”

Wyden said as a result of his investigation, he will introduce legislation soon to “crack down on the abuse” of PPLI policies.

The report noted that the legislation won’t affect 99.9 percent of insurance policies used by typical families, but will focus on adding guardrails so millionaires and billionaires cannot use the PPLI policies as a way to avoid taxes.