This month, our “Get to Know” takes us beyond the walls of IPL and into a conversation with Jay Judas, Founder and CEO of Life Insurance Strategies Group. A former senior executive with several leading life insurance carriers, Jay now provides strategy, validation, and structure to help simplify how sophisticated clients and advisors approach life insurance.
In our conversation, he shares what continues to fascinate him about Private Placement Life Insurance (PPLI), the misconceptions he wishes more advisors would leave behind, and how his unique career path led to the creation of LISG. And of course, we couldn’t resist asking what’s currently on his TV watchlist.
A significant client category for LISG is that of families structuring generational wealth. PPLI can play an outsized role in helping preserve, grow and pass existing wealth to future generations. The question to use PPLI is often binary. If someone has accumulated wealth they will not tap in their lifetimes, why should they pay tax on those funds? By structuring investments under a life insurance policy, our clients benefit from tax-deferred growth, the ability to get to the money income tax-free and the end goal of passing that wealth income tax-free.
If you want a planning solution to gain attention, it probably is not a good idea to have the words life insurance in the name!
In all seriousness, PPLI is the use of life insurance to apply tax efficiency to investments. Unfortunately, life insurance makes people think about being cold called and to be pressured to purchase a whole life policy by an agent. PPLI is at the other end of the life insurance spectrum, and it takes education, like that provided by IPL, to demonstrate to advisors that PPLI is just as much of an investment tool as it is a life insurance product.
What I enjoy most is that PPLI brings together several counterparties who must work in tandem to make the solution work for the policyholder. In a PPLI transaction, there is the life insurance company, the FINRA-supervised life insurance professional, the independent investment manager, a custodian and, often, a fund administration company. All of these parties must learn from each other and, in effect, perform a dance of sorts to place a policy.
When you look closely, you notice that these folks are from vastly different worlds. You don’t find many situations where an investment manager must learn so much about life insurance and vice versa. The PPLI process truly reflects all of the hard work performed by those involved on behalf of a client.
Those who know me might expect me to discuss the testing of the Investor Control Doctrine we are witnessing in this market. That is certainly a problem but not a misconception.
What I want those considering PPLI to understand is that there is a statistically very low probability that they will ever touch a PPLI for liquidity. While policyholders often structure a PPLI policy so that they may access it for income tax-free withdrawals and loans, that rarely happens. In my 22 years in this market, I can count on two hands the number of PPLI policies I have ever see touched for cash.
First, it is inefficient because to get money from a PPLI policy, the investment manager must order investments under the policy sold to get that money. That can encumber future growth and reduce a policy’s effectiveness. Second, the appropriate buyer of a PPLI policy is rarely someone who thinks in terms of income, they are thinking about capital and will continue to do so as long as the policy is in force. Buying a policy as a MEC instead of a non-MEC can have meaningful costs savings that will snowball into a large amount of money over the 30, 40 and even 50-year span of a PPLI policy.
I am a recovering life insurance company executive. Throughout my career, I was given PPLI distributions to run as secondary and tertiary businesses and I was always fascinated by the solution. Eventually, I invested in a non-U.S. PPLI life insurance company and joined the board of directors of others.
In 2018, I was sitting in the audience of a PPLI panel presentation at a life insurance conference. The speaker said that the problem with PPLI was that there were a number of parties to a transaction but no quarterback to bring them together and to run the transaction. A lightbulb of an idea popped on in my head, leading me to form Life Insurance Strategies Group a few months later.
Our firm helps individuals and institutions make decisions regarding complex life insurance transactions. We do not sell products and sit as a part of the client’s planning team, running life insurance transactions on their behalf. Some of these transactions involve PPLI but we also do quite a bit of estate, executive benefit and U.S.-nexus work.
I gave up picking “top” shows years ago because I love so many programs. Right now, I am enjoying watching the Diplomat on Netflix, Slow Horses on Apple TV and Boston Blue on CBS.
