Episode Details

When evaluating the economics of a

Private Placement Life Insurance (PPLI) policy, two charges are frequently confused:

👉 Wrap Fees

and

👉 Cost of Insurance (COI)

Although both reduce overall returns, they serve very different purposes and impact policy performance in different ways.

⚖️ 1️⃣ What Is a Wrap Fee?

A wrap fee is a comprehensive investment-management fee that typically covers:

• Investment management

• Portfolio administration

• Custody services

• Advisory services

• Reporting and account maintenance

📊 How Is It Calculated?

Wrap fees are generally charged as:

👉 A percentage of assets under management (AUM)

For example:

• The larger the portfolio, the larger the fee amount.

💸 Where Is It Paid From?

Wrap fees are typically deducted directly from:

• The managed investment account

They are investment-related expenses rather than insurance expenses.

🏦 2️⃣ What Is COI?

COI stands for:

👉 Cost of Insurance

This is the charge associated with:

• Providing the policy’s death benefit

• Covering mortality risk

• Supporting insurance obligations

📈 What Determines COI?

COI generally varies based on:

• Age

• Health status

• Gender (where permitted)

• Policy design

• Amount of insurance coverage

💰 3️⃣ Where Is COI Charged?

Unlike wrap fees:

• COI is generally deducted from:

• The policy’s cash value

This directly reduces the amount available for investment growth inside the policy.

📉 4️⃣ Impact on Returns

Wrap Fees

Reduce returns by:

• Lowering net investment performance

The fee is generally tied to:

• Portfolio size

COI Charges

Reduce returns by:

• Lowering policy cash value

And because COI often increases with age:

👉 The impact may become more significant over time.

🧠 5️⃣ Why the Difference Matters

A PPLI policy may include both:

Investment Costs

• Wrap fees

• Manager fees

• Fund expenses

and

Insurance Costs

• COI charges

• Policy administration fees

Understanding both is critical when evaluating:

• Long-term Internal Rate of Return (IRR)

• Policy sustainability

• Funding requirements

⚠️ 6️⃣ Common Misconception

Many investors focus exclusively on:

• Investment management costs

while overlooking:

👉 Rising COI charges later in life.

In long-duration policies, COI may become one of the most important factors affecting overall performance.

📄 7️⃣ Due Diligence Considerations

Before implementing a PPLI structure, review:

• Wrap fee schedules

• COI projections

• Policy illustrations

• Guaranteed vs non-guaranteed charges

The goal is to understand:

👉 The total economic cost of the structure.