Insurance dedicated fund (IDF)

An investment manager who runs a strategy for PPLI clients usually does so through an insurance dedicated fund. The fund is open only to insurers, which buy its interests for the segregated accounts behind their contracts. The insurer owns the fund interests, and the value of the PPLI structure follows the fund.

Why PPLI invests through IDFs

The rules that shaped IDFs are US rules, applying to US taxpayers. Internal Revenue Code section 817(h) and Treasury Regulation 1.817-5 require the segregated account behind a variable contract to be adequately diversified: no more than 55% of its value in any one investment, 70% in two, 80% in three and 90% in four. Where the fund is a partnership, trust, regulated investment company or REIT for US tax, all its interests are held by insurers' segregated accounts, and the public can reach it only through an insurance contract, the test looks through to the fund's own holdings, so one well-diversified IDF can meet it.

Ownership follows the same line. Under the IRS's investor control rulings, a contract holder whose account holds a fund the public can buy is treated as owning it, while a fund available only through insurance, over whose investments the holder has no say, belongs to the insurer.

In practice

• The manager runs the IDF to a stated strategy, such as multi-asset, private credit or hedge funds.
• The insurer approves the fund and allocates the segregated account to it.
• The policyholder sets objectives and risk appetite; the manager chooses the holdings.
• The fund values its holdings and reports to the insurer, which values the structure from it.

In a PPLI structure

For a UK-resident policyholder, shares in open-ended investment companies, UK or overseas, and interests in non-UK unit trusts and co-ownership schemes are permitted property categories, where the insurer offers that category to all its policyholders or to a published class of them, under the personal portfolio bond rules. A properly structured PPLI investing through suitably diversified IDFs therefore avoids PPB treatment, and keeps the chargeable event treatment of a non-UK life insurance contract.

Common questions

What is the difference between an IDF and a retail fund?

A retail fund is sold to the public. An IDF is sold only to insurers for their segregated accounts. Under US rulings, a holder whose account holds publicly available funds can be treated as owning them, which is why PPLI for US taxpayers uses IDFs.

Can an IDF hold private equity or private credit?

Yes, within the insurer's approved asset classes and, where US rules apply, the diversification limits. The fund holds the underlying investments and reports their values to the insurer.

Go deeper: how PPLI works.

Sources

• 26 U.S.C. 817(h): diversification and look-through
• 26 CFR 1.817-5: diversification requirements for variable contracts
• IRS Internal Revenue Bulletin 2003-33: Rev. Rul. 2003-91 and Rev. Rul. 2003-92
• ITTOIA 2005 s.520: personal portfolio bonds, property categories
• HMRC IPTM7745: permitted property, collective investment schemes

Last reviewed November 2026.