Investors are more and more considering private placement insurance strategies. This would include private placement variable annuities (PPVA) and private placement life insurance (PPLI) to further lower tax liabilities on their burgeoning private credit investments. Combined, these strategies can save investors tens of millions of dollars in unnecessary taxes.
Private credit has become a hugely popular sector beneficiary as investors chase yield in the not-so-great search for yield. All of this has helped push the market size from $1 trillion in 2020 to $1.5 trillion at the start of 2024. Alternative data provider Preqin forecasts the market growing to $2.6 trillion by 2029. This forecast reflects that desire with a swell of sustained interest in this asset class.
Returns from direct lending in private credit are often highly taxed. The effective tax burden for high-earners The top marginal federal tax rate can reach as high as 40.8%. This is in stark contrast to the much lower 23.8% tax rate on long-term capital gains.
Private placement insurance strategies such as PPVA and PPLI provide a powerful solution. By leveraging these insurance products, investors may be able to lower or postpone taxes related to private credit investments. The rise in popularity of these strategies demonstrates an increasing realization of their possible tax advantages.
Private credit is an extremely popular asset class right now. At the same time, the higher tax burden on ordinary income pushes the pursuit of more tax-efficient investment vehicles. The private credit market is booming. Strategies PPVA and PPLI are emerging as instrumental strategies to investors who are wise to the tax implications and serious about maximizing their ROI.
