How COI Charges Impact PPLI Returns

Why It Matters

Advisers and clients must account for COI when modeling PPLI returns because underestimated insurance charges can materially reduce long-term investment performance and alter suitability compared with trusts or other wealth-transfer vehicles. Accurate COI assumptions are therefore essential for tax-efficient estate and investment planning.

Summary

In a short explainer, tax attorney and accountant Alysa Marie Apple discusses how the cost of insurance (COI) charge in private placement life insurance (PPLI) policies directly reduces the policy’s cash value and therefore lowers the internal rate of return (IRR). She emphasizes that COI is a recurring fee that erodes net investment performance and that rising COI with a policyholder’s age causes the IRR to decline over time. The conversation frames PPLI as a bespoke planning tool for high-net-worth families—often used alongside or instead of trusts and family foundations—where understanding fee mechanics is critical to evaluating outcomes. Contact details for follow-up were provided via HJ Tax’s website.

Original Description

How COI Charges Impact PPLI Returns

The Cost of Insurance (COI) charge directly reduces the policy’s cash value by functioning as a recurring expense that lowers the net investment return, thereby reducing the policy’s long-term Internal Rate of Return (IRR). Because COI charges generally increase with age, they tend to cause the policy’s IRR to decline over time.

TIMESTAMPS:

00:00 – INTRO

01:12 – Understanding COI Charges In PPLI

01:33 – Impact On Long-Term Internal Rate Of Return

01:48 -- OUTRO

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