Life Insurance Premium Financing Strategy

Life Insurance Premium Financing Strategy

Life Insurance Premium Financing Strategy is a strategy used by many wealthy individuals and business owners to finance premiums for large life insurance policies for estate planning or business purposes. The strategy allows a high net-worth individual who has a need for permanent life insurance to borrow money from a third party lender to pay the insurance policy premiums rather than using their current cash flow or assets.  Those high net worth individual utilizing this strategy understand both the power, and associated risks, of leverage. Depending on the way the arrangement was structured, the life insurance policy can be used as main collateral, or other forms of collateral might be used.  Once the policy generates enough surplus cash value in later years, the owner of the policy can then pay back the premium finance loan from policy cash values.  Life insurances are owned inside the Irrevocable Life Insurance Trust (ILIT), which must be done by the attorney whom specializes in Irrevocable Life Insurance Trust.     
Premium financing can be an attractive and powerful option to the high net worth individuals who:
  • Needs a substantial amount of insurance for estate-planning, wealth accumulation, liquidity at death, asset protection or business purposes.
  • Doesn’t want to liquidate their illiquid, profitable and meaningful asset to pay the premium.  
  • Preferred lower out of pocket cost when compared to paying premium directly.
  • Preserve capital for other investments will yield a return greater than the cost of the loan.
  • One thing that successful investors and business executives understand well is the wealth creating power of leverage.
  • In addition to potential benefits, there are also significant risks associated with premium financing.  
  • Variable Loan Interest Rate: generally most lenders are using variable loan interest rate, not fixed rate.
  • Pledge Additional Collateral: lender required borrower to pledge additional collateral for any deficit between the loan balance and the policy cash surrendered value.  The additional collateral can be cash, publicly traded stock, cash surrendered value of other life insurance policies, letter of credit and personal guarantees.
  • Personal Guarantee:  loan must be repaid.  
  • If the net worth of the borrower falls or the income of the borrower declines, the bank could decide not to extend the loan.  The bank may decide it needs more collateral in order to extend the loan into the next short term period.  The lender may have the right to call the loan.
  • Policy crediting rate risk:  the amount of interest credited to the policy will vary, and if the amount of credited is less than projected, lender may required additional collateral to be posted, or delay the repayment of the loan from policy cash value.
When a well designed and properly managed life insurance premium finance case, it may create substantial income stream to supplement retirement in addition to paying estate taxes.  Each of these cases are unique and have very different designs.  We have a comprehensive list of third party vendors, lenders and advanced case design support to get your case properly designed and funded.  We will present and negotiate the best rates and terms from lenders so to the minimize the risk and maximize the coverage for you.  We have the capabilities and deep relationships with our insurance partners to get the best possible offer for your case.  Call us today for a FREE consultation on Life Insurance Premium Financing Strategy.  A combination of best insurance product and strategy use by many high net worth clients.             

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