PPLI's plethora of fees can also be a turnoff. They can amount to 1% annually on average of the policy's cash value, and may include management fees, upfront sales charges and recurring administrative fees.
Policyholders are also mostly stuck with investing in the options provided by the insurer.
If they'd like more customization, they can entrust an advisor to make investments, but they can only provide general guidelines and the account must meet certain diversification requirements. If not, they'll face scrutiny from the Internal Revenue Service. It can be hard to maintain that separation, especially if someone is using an advisor for PPLI investments as well as non-insurance holdings.
Don't assume the IRS isn’t watching. In a case decided several years ago, an investor was ordered to pay a big tax bill because he was ultimately deemed to be controlling the account despite the façade of using an investment manager.
Alexis Leondis is a Bloomberg Opinion columnist covering personal finance. Previously, she oversaw tax coverage for Bloomberg News.