Private placement life insurance is an investment wrapped inside an insurance policy. The Internal Revenue Code treats the taxation of insurance differently from that of investments, like stocks or hedge funds, and does not levy federal income tax or the 15 percent capital gains on a life insurance policy when it pays out upon the death of the holder. So by stuffing an otherwise taxable investment inside a tax-free life insurance policy, investors can reap the compounded gains of that investment and the death benefit, all tax-free.
Private Placement Insurance Is Untapped Resource for Wealthy – NYTimes.com