1. A private placement variable annuity (PPVA) contract is issued to the owner from the insurer after the insurer approves the application and the owner remits premiums to the carrier.  Premium payments can be in the form of cash or in-kind (in-kind premiums such as property or securities in kind are subject to taxation on any gain in value at the transfer from the contract owner to the insurer’s separate contract account).
2. Owner selects a Separately Managed Account (SMA) or an Insurance Dedicated Fund (IDF) in which the contract’s account value will be invested and managed by a desired Registered Investment Advisor (RIA) or similarly permitted Investment Manager.  The cash value is held in a separate account, segregated from the carrier’s general account assets, dedicated exclusively to the owner’s PPVA contract, and not subject to the reach of the carrier’s general creditors.¹
3. The separate account invests the existing account value and new premium amounts into the SMA or IDF.
4. Cash is disbursed from the SMA or IDF to the separate account as needed where it may be held in a money market fund for payment of listed contract fees, disbursed to the contract owner if a distribution is elected.²
5. Owner has the choice to receive distributions from the separate account cash value in the form of withdrawals, subject to a 10% federal excise tax on distribution made before the contract owner is age 59 ½.³
6. Upon the annuitant’s death, the insurer will pay the PPVA contract’s proceeds to the beneficiary designated by the owner.

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1. ¹ IRC §817(c).  A “separate account” is a separate set of financial statements held by a life insurance company, maintained to report assets and liabilities for particular products that are separated from the insurer's general account.  Detailed statutory financial statement data and disclosures regarding the products and assets captured in a separate account can be found in SSAP No. 56—Separate Accounts.
2. ² PPLA carriers typically hold enough value upfront in the money market fund within the separate account to support the deductions for the anticipated contract charges over 12-month periods thereby necessitating a distribution from the SMA or IDF to contract policy charges only once per policy year.
3. ³ IRC §72(q)