The Wyden Draft Bill, formally part of the Modernization of Derivatives Tax Act discussion, poses a potential existential threat to the Private Placement Life Insurance (PPLI) industry. While 2025 has been dominated by discussions around the One Big Beautiful Bill Act (OBBBA), it’s crucial to revisit 2024’s legislative developments, particularly Senator Ron Wyden’s draft proposal, which could fundamentally alter the tax treatment of derivatives—and, by extension, PPLI structures relied upon by ultra-high-net-worth individuals.

In this episode, we break down the key provisions of the draft bill, explain how they intersect with PPLI, and discuss the possible future of these structures in light of mark-to-market taxation.

🧩 Key Topics Covered

• 
  
• 
  
• Mark-to-Market Taxation: All derivative contracts must be treated as sold at fair market value at year-end.
• 
  
• 
  
• 
  
• Realization of Gains/Losses: Net gains are taxed as ordinary income; net losses generally treated as ordinary losses.
• 
  
• 
  
• 
  
• Broad Definition of Derivatives: Includes options, futures, swaps, forwards, and similar instruments.
• 
  
• 
  
• 
  
• Look-Through Rule for Life Insurers: Income, gains, losses, and expenses in a policyholder’s separate account are attributed to the policyholder, threatening PPLI’s core tax-deferred growth benefit.
• 
  
• 
  
• 
  
• Industry Impact: Potentially renders traditional PPLI structures obsolete for tax-deferred accumulation.
• 
  
• 
  
• 
  
• Legislative Status: Still a discussion draft, with political hurdles and potential for compromise or grandfathering.
• 
  
• 
  

💡 Key Takeaways

• 
  
• 
  
• PPLI at Risk: The draft bill could eliminate the primary tax advantage that makes PPLI attractive to UHNW individuals.
• 
  
• 
  
• 
  
• Derivatives Tax Shift: Moving from realization to mark-to-market fundamentally changes how gains and losses are recognized.
• 
  
• 
  
• 
  
• Uncertain Outcome: Strong industry opposition may lead to softened legislation, but the potential impact is severe.
• 
  
• 
  
• 
  
• Actionable Insight: Advisors and clients should monitor developments closely and plan for contingencies if the bill progresses.
• 
  
•