Annual PPLI Review: Costs, Tax and Governance Checklist

A good annual PPLI review checks the policy's values, charges, tax status, reporting, investment risk and ownership against current documents, and it ends with a short list of open issues, each with an owner and a deadline. The meeting is a governance habit. Quarterly diversification tests, filing dates and pre-change checks still run on their own clocks, and ticking every box on a checklist will not guarantee compliance, returns or a particular estate-tax outcome. What the framework does well is surface the loose ends and put a name next to each one.

This checklist is for policy owners, trustees and family-office governance teams overseeing US-oriented private placement life insurance. If the structure touches other jurisdictions, they need their own analysis. Assemble the issued contract and amendments, current statement, transaction history, cost schedule, in-force illustration, investment reports, compliance records and relevant trust and tax documents. The steps below are our suggested framework. Your legal obligations come from the cited rules and the arrangement you actually have.

Policy performance and costs

Start with a reconciliation that explains the movement from opening to closing value. Separate premiums, withdrawals, investment results, policy charges and debt. Account value, cash surrender value and the net death benefit are different measures.

• Investment results: obtain returns by strategy and suitable benchmarks. Identify the measurement period, treatment of cash flows and whether each number is before or after investment and insurance costs. Do not compare mismatched return measures.
• Charges: reconcile insurance, administration, investment, custody or platform charges and distribution compensation where applicable. Show amounts and the asset base used for any percentage. Identify charges embedded in fund values to avoid double counting.
• Funding: compare actual values with the original assumptions and a current in-force illustration. Examine lower-return and higher-charge scenarios, future premiums and the conditions for keeping the cover in force. Illustrations are not guarantees.
• Access: record withdrawals, loan balance, interest rate, capitalised interest, surrender charges and effects on the death benefit. Section 72 can make a lapse with debt outstanding, or access from a MEC, taxable. Look at how the loan interacts with values and charges over time, not just at today's loan balance.
• Comparative economics: use a feasible direct-ownership alternative with the same exposure, funding, dates and exit event. Include taxes outside the policy and taxes on access or termination. The after-tax comparison guide and asset-location ledger explain the approach.

The SEC variable-life guide walks through costs, investment risk, lapse and replacement. It is useful for framing questions, but your own PPLI contract is what sets the features and charges.

Tax compliance: keep the tests separate

For each tax conclusion, ask the insurer or adviser to show you the work. A one-line statement that the policy is compliant tells you little. A dated record naming the test, the inputs, who ran it and any open exception tells you a great deal.

Life-insurance qualification

Section 7702 combines the applicable-law requirement with either the cash value accumulation test or the guideline premium requirements and cash value corridor. Record which route applies and how premiums, benefits, withdrawals and proposed changes affect it. Use the qualification and diversification guide for the wider framework.

Diversification

Under the general test in 26 CFR 1.817-5(b)(1), the concentration limits are 55%, 70%, 80% and 90% for one, two, three and four investments respectively. Paragraph (c)(1) generally tests quarter-end or within 30 days afterward. Aggregation, qualifying look-through, alternative tests, start-up and market-fluctuation provisions can all change the answer, which is why holding five funds proves little on its own. Ask for the account-level calculation and the basis for any exception. If a failure looks possible, bring in a specialist quickly: relief under paragraph (a)(2) is available only on conditions.

Investor control

Review communications and actual decision rights, including informal directions to managers. Revenue Ruling 2003-91 turns on its particular facts. It does not give owners general permission to direct trades. Record who approved and executed decisions. Our investor-control guide explains the distinction between permissible policy choices and ownership of underlying assets for tax purposes.

MEC status

Under section 7702A, review more than the most recent premium against a seven-pay limit. Certain benefit reductions, material changes and exchanges matter. A material change can trigger a new testing period with adjustments; the statute includes exceptions. Confirm the current classification and obtain an assessment before additional funding or a benefit change. A MEC can remain life insurance while its access rules differ. The MEC and seven-pay guide covers that distinction.

Reporting obligations

Create a filing calendar from the owner's, trust's and issuer's actual classifications. Record the preparer, applicable year, due date, any valid extension and evidence of filing. A policy issued abroad does not trigger every return on this list; each has its own test.

• Issuer reporting: identify the insurer's FATCA classification, relevant jurisdiction and reporting route. Treasury FATCA guidance and the applicable agreement provide the framework. Issuer reporting does not replace an owner's filings. See the CRS and FATCA guide for the broader reporting map.
• Form 8938 and FBAR: the IRS comparison includes foreign cash-value life policies in both regimes. Covered persons, interests, thresholds and exceptions differ; neither form substitutes for the other.
• Foreign trusts: Form 3520 instructions address specified US-person transactions, ownership and certain foreign gifts. Form 3520-A instructions generally concern a foreign trust with a US owner, subject to applicable exceptions. A US owner can have responsibility when the trust fails to file. So the question is not simply whether a foreign trust owns the policy, but who is treated as owning the trust and what transactions took place.
• Extensions: Form 3520-A has its own extension procedure. An extension of an income-tax return does not extend that form. Use the current instructions for the relevant return; do not assume that the annual review date controls filing deadlines.
• Other obligations: examine foreign-policy premium excise tax and any exemption, using the Form 720 instructions. Check residence, citizenship, trust and local reporting separately, particularly for internationally mobile families.

Carrier evaluation

Identify the issuing legal entity and review its current financial statements, regulatory status and any relevant financial-strength ratings. Record the date, source and entity covered by each rating. Remember that a strong group brand or rating does not guarantee policy payments, separate-account protection or investment results.

• Platform changes: review fund closures, mergers, manager changes, valuation arrangements, eligible investments and restrictions that affect the policy.
• Administration: test whether statements, valuations, notices and responses arrived when required by the arrangement. Record missing evidence and who will obtain it.
• Terms and service: compare actual charges and service with realistic alternatives. Keeping the policy, changing an available option and replacing the policy are different decisions. Replacement can add underwriting, charges and tax issues; obtain a transaction-specific analysis before acting.

Use the carrier due-diligence framework to document the decision. The question is whether the existing arrangement still does its job for this family, not whether the carrier is the best in the market.

Investment mandate review

Reassess the investment mandate in the context of the family's total portfolio. Record the insurance purpose, acceptable risk, return assumptions, time horizon and planned access. If the family's preferences have changed, that is a conversation about the mandate. It does not give the policy owner authority to direct specific underlying trades.

• Available exposure: confirm which strategies the insurer actually accepts. Digital assets and infrastructure investments need their own eligibility, valuation, custody and liquidity assessment. Our coverage of them is not a sign that any carrier will accept them.
• Cash needs: reconcile expected charges, loan interest, withdrawals and capital calls against cash and assets that can realistically be redeemed. Include notice periods, gates, settlement delays and stressed valuations.
• Manager review: assess returns, risk, mandate adherence, key-person changes and reporting quality. Route any proposed change through the permitted insurer process and the investor-control analysis.

Trust and estate planning review

If a trust owns the policy, compare the current deed, amendments, appointment documents, ownership record and beneficiary designations. Confirm who holds each policy power and who can act when a trustee or other decision-maker is unavailable. Do not assume every trust has a protector or that a protector has unrestricted authority.

• Tax position: distinguish income attribution under section 671 from insurance estate inclusion under section 2042. Certain transfers can raise the three-year rule in section 2035. The trust's terms and powers drive the result, whatever the trust is called.
• Roles and succession: check trustee and trust-protector powers, replacement provisions, beneficiary changes and the succession plan. Record approvals required by the instrument and governing law.
• Changed facts: assess relevant law changes, births, deaths, marriage or divorce and proposed distributions. Review expatriation or US immigration planning before the event where possible; citizenship and residence changes need jurisdiction-specific analysis.

Family governance and the next generation

Assign responsibility for insurance administration, tax work, legal interpretation, investment oversight and recordkeeping. Identify any gaps and conflicts among the owner, trustees, intermediary, advisers, managers and insurer. An investment committee can oversee permitted policy choices without directing prohibited individual trades.

Prepare future decision-makers to understand the insurance purpose, liquidity limits and actual authority of each role. Maintain an accessible succession record and an escalation contact. Fit training and meeting frequency to the structure. Good attendance is welcome, but it tells you nothing about whether the policy meets legal or contractual requirements.

Action items and documentation

Finish with an issue register. For each issue, record the evidence, responsible person, required decision, deadline and proof of completion. Distinguish a resolved question from an assumption awaiting confirmation. Keep the documents with the review record under the family's retention and access arrangements.

Review item	Evidence and responsible role	When to resolve
Values, costs and funding	Reconciliation, charge schedule and in-force illustration; insurer and review coordinator.	At the annual review and when funding or access needs change.
Diversification	Account calculation and applicable-rule analysis; insurer, manager and tax adviser.	Applicable quarterly tests, with prompt escalation of a possible failure.
Qualification and MEC status	Current test records and proposed-change analysis; insurer and tax adviser.	Ongoing requirements and before relevant funding or benefit changes.
Tax and information returns	Applicability decision, filing and extension records; responsible taxpayer and preparer.	Each return's actual deadline, independent of the meeting date.
Ownership and succession	Deed, appointment and policy records; owner, trustee and legal adviser as applicable.	At review and before a proposed transfer or role change.

Reopen the review when a material fact changes. A missed filing, possible diversification problem, unexpected charge, proposed premium, benefit change, loan or ownership transfer can need attention before the next annual meeting. Ask the appropriate insurer, tax or legal specialist to determine the response and any available relief. Writing an issue down does not fix it, and no review can guarantee future investment results or that the wealth will be preserved.

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For a question about this checklist, ask about PPLI. Use the actual policy and relevant professional advisers for a personal assessment.

Updated 16 September 2026. Published by PPLI.com. This is an educational review framework, not a compliance certificate or an individual tax, legal, investment or insurance opinion. Read our editorial standards.