Premium Financing

Premium financing can be a valuable tool for high-net-worth individuals who need life insurance but don’t want to tie up capital. The idea is that the return on these investments will exceed the cost to borrow.

Adding a borrowing strategy to your estate plans can protect your heirs in the future—and your financial position today. For the executors of your estate, paying death taxes may precipitate a liquidity crisis—forcing them to hastily sell assets that would otherwise be inherited by your beneficiaries, or resulting in other undesired outcomes.

Who CAN BENEFIT?

These are high-net-worth individuals, corporations, trusts, and partnerships needing substantial coverage who are looking for ways to protect, build, and transfer wealth in the most cost-efficient manner. If your clients are business owners, their net worth may not be liquid. Or, your clients may not want to liquidate growing assets to pay premiums.

WILL THIS FIT YOUR SITUATION?

What do you think about borrowing, or do you like the idea of leveraging your assets?
Do you have liquid assets to pay premiums?
Would you be exposed to capital gains taxes if you sold assets to pay your premiums?

A way to plan for estate taxes

One way to protect future heirs is to insure your life so that, at your passing, estate taxes can be paid with the proceeds from a high-value life insurance policy. Typically, in such arrangements, the policy is held separate from the rest of the estate, in a trust.

An insurance policy can directly benefit your heirs and other beneficiaries. The proceeds of the policy can be used to:

Cover estate taxes and thereby avoid liquidating assets or disrupting an investment portfolio
Retain control of significant or illiquid assets, such as a concentrated stock position or real estate assets.
Provide funds to sustain a business

TOP REASONS TO FINANCE LIFE INSURANCE PREMIUMS

The value of life insurance for estate liquidity, protection planning, business coverage, or as an alternative asset class is naturally weighed against the capital or cash flow required to support the premium payments. High net worth individuals will often forgo the purchase or acquisition of needed insurance because of age and underwriting requirements that make premiums cost-prohibitive or cash flow and capital needed for other important projects or investments.

Leverage

Most self-made millionaires are comfortable leveraging their assets and have used that to create wealth. Premium finance permits clients to leverage their current assets and the policy's cash surrender value to obtain the coverage they need.

How premium financing works?

IDEAL PLANNING CASE Profile

$10+ million in net worth is preferable.
Maximum age of 70
Have undedicated liquid assets required for collateral, at least $1 million
Has solid financials and income for the last two years.

Let's Talk

You borrow money from a third-party lender to fund your life insurance premiums.

The lender makes premium payments to the carrier

You make payments to the lender for interest and/or a portion of the principal.

The addition of a rider may provide high early cash value from the policy that can be used as collateral to secure a portion of the loan.

The lender is repaid with a policy distribution, other assets or both

Upon the insured's death, the death benefit is paid to the beneficiary or to the lender if the loan has not been repaid.