In my previous article on private placement life insurance (PPLI), I described how families with significant taxable investment income can restructure the problem entirely, moving assets into an insurance wrapper that allows them to compound free of annual tax friction. The follow-on question I hear most often is a natural one: Is there a version of this that does not require a life insurance policy?
There is and it’s called a private placement variable annuity, or PPVA. The structure shares much of the same logic as PPLI, and for certain families and planning situations, it is the more appropriate tool. For anyone seriously evaluating these options, we recommend taking the time to understand where the two converge and where they diverge.
A private placement variable annuity is an annuity contract issued by an insurance carrier to an accredited investor or qualified purchaser. The investor funds the contract with a premium contribution, selects an investment manager, and the underlying assets grow on a tax-deferred basis inside the annuity under IRC Section 72. Unlike PPLI, there is no life insurance death benefit; the structure focuses entirely on tax-deferred accumulation.
PPVA is not a traditional retirement product, even though the annuity mechanics are similar. The investor is not limited to a constrained menu of sub-accounts. The annuity can hold hedge funds, private equity, private credit, and other alternatives that would otherwise generate significant taxable income year after year in a standard portfolio. The investments are held in a separate account, insulated from the insurance carrier's general creditors.
Minimum investment thresholds are generally lower than PPLI. Many carriers will accept initial contributions starting around $1 million, though the tax-deferral benefit grows considerably as the capital base increases. The setup is typically faster and less structurally complex than PPLI, in part because there is no insurance underwriting involved.
Inside a PPVA, investment income and capital gains are not subject to current taxation. The portfolio can be actively managed, rebalanced, or reallocated without triggering a taxable event along the way. Taxes are deferred until the investor takes a distribution, at which point gains are taxed as ordinary income.
Unlike PPLI, where policy loans and structured withdrawals can often be arranged without triggering income tax, PPVA distributions are taxable. PPVA offers deferral, not elimination. For investors who expect to remain in a high combined federal and state bracket throughout their lifetime, that distinction matters considerably. For investors who plan to retire to a lower-tax jurisdiction (Florida, Texas, and Nevada come up often in these conversations) or who anticipate a meaningful step down in income in later years, the calculus looks quite different.
The One Big Beautiful Bill Act, signed into law in 2025, preserved the favorable tax treatment of both PPLI and PPVA. Earlier legislative proposals that would have curtailed the tax advantages of private placement structures were excluded from the final legislation, leaving both tools intact for families who use them properly.
Consider the following hypothetical scenario: a New York-based business owner sold his company in 2023 and now holds approximately $15 million in liquid assets, most of it invested in a taxable account generating income through a mix of private credit and hedge fund strategies. His combined federal and state tax rate on ordinary income runs approximately 52%—a realistic figure for New York, where the top federal, state, and city rates stack to just under that level.
He funds a PPVA with $5 million of that capital. The underlying allocation mirrors what he was already doing in his taxable account. Over 10 years, assuming an 8% gross annual return, the $5 million inside the PPVA could grow to approximately $10.8 million with no tax paid along the way. The same $5 million in his taxable account, with a 52% effective rate applied to annual gains and income, would grow to roughly $7.3 million over the same period—assuming gains are recognized annually, as tends to be the case with income-generating alternatives. That difference of approximately $3.5 million represents deferred tax: capital that has had the opportunity to compound rather than being remitted to the IRS year after year.
When he eventually retires to Florida, his distributions will be taxed only at the federal rate, reducing the effective burden considerably compared to what he is paying today on every dollar earned in New York.
Both structures address the same core problem: they shelter tax-inefficient investments from annual taxation. The right choice depends on several variables, and the answer is rarely obvious without looking at the full picture.
PPVA tends to be the better fit when:
PPLI tends to be the better fit when:
Some families use both. A PPVA may make sense for a portion of the portfolio where lower minimums and simpler access are priorities, while PPLI is deployed for longer-horizon capital where the estate planning benefit adds a meaningful second layer of value. My article on PPLI covers that side of the comparison in depth.
Neither structure is appropriate for every situation, and neither replaces the need for qualified legal and tax counsel when evaluating implementation.
PPVA is more streamlined than PPLI, but it still requires deliberate execution. The investment manager must be selected before funding, the portfolio must be managed within the annuity's separate account structure, and the investor directs, rather than directly owns, the underlying assets. The IRS investor control rules apply here as well as to PPLI. An arrangement that effectively gives the investor direct ownership will not be treated as a qualifying annuity contract.
The families who get the most out of these structures are the ones whose advisors are coordinating across disciplines from the beginning. The decision between PPVA and PPLI, the selection of the carrier, the investment strategy inside the wrapper, and the broader estate planning context all interact. Getting one piece right while leaving the others unconsidered is how a structure ends up underperforming what was possible.
At Next Vantage, that coordination is central to how we work with families navigating exceptional financial complexity—whether we are advising directly or serving as a resource for a professional partner working through a client's options. To start a conversation about whether PPVA fits your planning picture, contact us at (212) 433-1108 or frice@nextcapitalmgmt.com.
A private placement variable annuity is an annuity contract issued by an insurance carrier exclusively to accredited investors and qualified purchasers. Unlike traditional retail annuities, which offer a limited range of conservative sub-accounts and often carry significant fees, a PPVA gives the contract holder access to a broad range of institutional-quality investments, including alternatives like hedge funds, private equity, and private credit. The primary purpose is tax-deferred accumulation under IRC Section 72 (the portfolio grows without current income or capital gains taxation) rather than guaranteed income or principal protection. There is no life insurance death benefit, which keeps the structure focused and the costs lower than PPLI.
A PPVA is available to accredited investors and qualified purchasers, as defined by the SEC. In practice, the structure is most commonly used by families with investable assets in the range of $5 million or more, though some carriers will accept initial contributions starting around $1 million. The tax-deferral advantage compounds over time, so the benefit scales with both the size of the contribution and the length of the holding period. Families generating significant annual taxable income from alternatives and those planning to retire to a lower-tax state or jurisdiction tend to benefit most from the structure.
Distributions from a PPVA are taxed as ordinary income under IRC Section 72. Unlike PPLI, where policy loans and structured withdrawals can often be taken without triggering a taxable event, PPVA offers deferral rather than elimination. The practical implication is that the timing and location of distributions matter considerably. Investors who take distributions during lower-income years, or after relocating to a state without income tax, can reduce the effective rate significantly relative to what they would have paid each year had the assets remained in a taxable account.
A PPVA can hold a significantly broader range of assets than a standard annuity product, including hedge funds, private equity, private credit, real estate vehicles, and other alternatives. The investment manager is selected by the contract holder, but the assets are managed within the annuity's separate account structure. The portfolio must comply with IRS investor control rules under IRC Section 817, which require that the contract holder direct rather than directly own the underlying investments. Within those parameters, the investment strategy can be tailored to the investor's goals and risk profile. The tax-deferred structure is particularly well-suited for higher-yielding assets that would otherwise generate the most taxable income in a standard account.
Both PPVA and PPLI shelter tax-inefficient investments from annual taxation, but they differ in two meaningful ways: the tax outcome at distribution and the estate planning dimension. PPVA defers taxes until distribution, at which point gains are taxed as ordinary income. PPLI, when structured correctly, can allow assets to compound and transfer at death without triggering income or estate tax. For families with significant estate tax exposure and sufficient scale to justify the insurance structure (typically a net worth above $20 million and liquid assets above $10 million), PPLI often offers a more comprehensive outcome. For families below those thresholds, those prioritizing simplicity, or those planning to shift to a lower-tax jurisdiction at retirement, PPVA is often the more practical starting point. The right answer depends on the full picture, and working through that comparison with advisors who coordinate across legal, tax, and investment disciplines is where the real value sits.
Frazer Rice is Director of Family Office Services and a Partner at Next Vantage, the Family Office Services group of Next Capital Management in New York City, where he has spent more than two decades advising families navigating exceptional financial complexity.