The five biggest sellers of a life insurance product call it “A Roth IRA on steroids”…
You’ve probably never heard of it - but these specific accounts held over $44 billion at the end of 2025…
It’s called private placement life insurance…
And on the surface it seems pretty similar to your standard life insurance…
You buy a policy… and inside the policy sits an investment account.
Because the tax code has spent decades encouraging people to provide for their families through life insurance… money inside that account grows without an annual tax bill… and when you die, the payout reaches your heirs free of income tax.
And now the ultra wealth have started putting these policies inside a trust so it dodges estate tax as well. Plus they use them to hold non-public investments that often come with the highest tax burden… like hedge funds… private credit and real estate.
Sounds like a free lunch right?
And it is to a certain extent, like if you’re a private equity executive who is due $20 million in distributions…
But like many of these products that may work for the ultra wealthy… they fall apart when adjusted down to us mere mortals…
So before you get cold called by a wealth manager trying to sell one of these to you …here are some things you should know.
You cannot touch it - to keep the prefential tax treatment, the IRS requires you to surrender control of what's inside to an advisor. The account has to hold at least five separate assets and gets tested quarterly to prove you are not secretly running it yourself.
The cost is as much as 4% a year!
So let’s say you take money compounding at 8% a year.
Over twenty years, $100,000 turns into $466,000.
With a 4% annual fee you only end up with $219,000.
So you end up paying more than half of your gains in fees.
Which means you end up with less than if you just had the money in a regular taxable account earning that same 8%… with the entire gain taxed at the top long-term rate of 23.8% on the way out.
Now compare that to a regular Roth IRA
If you own shares and you never sell them… you can reset your basis when they are passed onto your heirs. Because your heirs inherit it at its value on that day, with the entire gain wiped clean.
That’s tax-free compounding with full control… no 4% fees in sight
The thing I keep coming back to is that financial complexity is usually a workaround for a problem you do not have.
The private equity executive in that story has $20 million of ordinary income arriving whether they want it or not… with no way to defer it.
That is a genuine problem, and for a few million he can buy a genuine solution.
But you do not have his problem… and sadly it won’t stop bad actors trying to sell you the same solution…
Oliver