Private Placement Life Insurance (PPLI) maintains the same structure as traditional variable life insurance products, including separate account protection, state regulated policy forms, and tax qualification under IRC Section 7702. Generally, in order to qualify as a private placement, and thereby avoid registration under the Securities Act of 1933 or the Investment Company Act of 1940, an issuer must ensure that an offering meets certain criteria that limits the purchase of this product to specific types of purchasers (Accredited Investors and Qualified Purchasers).
ACCREDITED INVESTOR (see below for complete definitions)
An individual with a net worth of $1 million or more, excluding primary residence and automobile;
An individual who has made $200,000 per year in income for the past two years and has a reasonable expectation of doing so in the current year;
An individual and spouse with aggregate income of $300,000 per year for the past two years and have a reasonable expectation of doing so in the current year, or
A corporation, partnership, limited liability company, trust or tax exempt organization with assets exceeding $5 million, which was not formed for the purpose of investing in the product.
QUALIFIED PURCHASER (see below for complete definitions)
An individual who owns at least $5 million in Qualified Investments;
A family business or trust that owns at least $5 million in Qualified Investments;
A corporation, partnership, limited liability company, trust, or tax-exempt organization where each beneficial owner is a Qualified Purchaser;
A trust that was not formed for the specific purpose of investing in the product, so long as both the persons with decision making power and each of the contributors to the trust is a Qualified Purchaser, or
A corporation, partnership, or trust with at least $25 million in Qualified Investments.
QUALIFIED INVESTMENTS
Securities (as defined in section 2(a)(1) of the 1933 Act), other than securities of an issuer that controls, is controlled by, or is under common control with, the Prospective Qualified Purchaser;
Real Estate held for investment purposes;
Commodity interests held for investment purposes;
Financial contracts entered into for investment purposes; and,
Cash and cash equivalents (including foreign securities) held for investment purposes.
ADDENDUM
ACCREDITED INVESTOR
As used in Regulation D under the Securities Act of 1933 (“the Act”), Accredited Investor shall mean any person who comes within any of the following categories, or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person: [1]
Any bank as defined in section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; any insurance company as defined in section 2(13) of the Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a) (48) of that Act; any Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self- directed plan, with investment decisions made solely by persons that are accredited investors;
Any private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940;
Any organization described in section 501(c)3 of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;
Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;
Any natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of his purchase exceeds $1,000,000;
Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;
Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2) (ii); or
Any entity in which all of the equity owners are accredited investors.
[1] SEC Accredited Investor definition:
QUALIFIED PURCHASER
As defined in section 2(a)(51) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), Qualified Purchaser shall mean:
Any natural person (including any person who holds a joint, community property, or other similar shared ownership interest in an issuer that is excepted under section 3(c)(7) of the Investment Company Act [15 USCS § 80a-3(c)(7)] with that person’s qualified purchaser spouse) who owns not less than $5,000,000 in Qualified Investments, as defined by the Securities and Exchange Commission;
Any company that owns not less than $5,000,000 in investments and that is owned directly or indirectly by or for 2 or more natural persons who are related as siblings or spouse (including former spouses), or direct lineal descendants by birth or adoption, spouses of such persons, the estates of such persons, or foundations, charitable organizations, or trusts established by or for the benefit of such persons;
Any trust that is not covered by clause (2) and that was not formed for the specific purpose of acquiring the securities offered, as to which the trustee or other person authorized to make decisions with respect to the trust, and each settlor or other person who has contributed assets to the trust, is a person described in clause (1), (2), or (4); or
Any person, acting for its own account or the accounts of other qualified purchasers, who in the aggregate owns and invests on a discretionary basis, not less than $25,000,000 in investments.
Pursuant to Rule 2(a)(51)-3, certain companies as Qualified Investment Company Purchasers:
For purposes of section 2(a)(51)(A) (ii) and (iv) of the Act, a company shall not be deemed to be a qualified purchaser if it was formed for the specific purpose of acquiring the securities offered by a company excluded from the definition of investment company by section 3(c)(7) of the Investment Company Act unless each beneficial owner of the company’s securities is a Qualified Purchaser.
For purposes of section 2(a)(51) of the Investment Company Act, a company may be deemed to be a qualified purchaser if each beneficial owner of the company’s securities is a Qualified Purchaser.
Contact us if you are interested in evaluating private placement life insurance.
The tax and legal references attached herein are provided with the understanding that neither TRC Financial, nor M Financial are engaged in rendering tax, legal, or actuarial services. If tax, legal, or actuarial advice is required, you should consult your accountant, attorney, or actuary. Neither TRC Financial, nor M Financial should replace those advisors.
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