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Is premium financing suitable for you

Premium financing has been around for many years, enabling the ultra-wealthy to obtain large amounts of life insurance without paying premiums out of pocket. This strategy is now available to a wider variety of clientele.

In the broadest explanation, premium financing uses the bank’s money to fund large amounts of life insurance.

Premium financing may seem a bit unorthodox for those only familiar with run-of-the-mill strategies, but it offers incredible advantages that can radically shift your financial future.

Main Premium Financing benefits

  • Purchase very large amounts of life insurance without having to cough up large premiums. Instead, pay the interest on the loan.
  • Reduce the out-of-pocket cost for life insurance and retain your capital for other growth opportunities.
  • Additional tax-free income stream from the positive arbitrage between the interest on the loan and the return on the life insurance cash value.
  • Utilizing gifting effectively by gifting only the interest of the loan instead of the principal.
  • Avoiding a “fire sale” of your assets by your heirs due to estate taxes which are due within 9 months.

Your obligations

  • You must understand the importance and have the need for a large amount of life insurance, regardless of how you plan to fund it.
  • Your net-worth must be over $5M.
  • You should have the ability to provide collateral for the years where the loan balance is more than the policy’s cash value.
  • You will pay the interest on the loan.

Myths that you should be aware of

  • Myth #1: It’s free insurance.
  • Myth #2: It’s suitable for everyone.
  • Myth #3: It’s risk-free.
  • Myth #4: It’s only for new insurance policies.
  • Myth #5: Any Financial planner can set it up and manage it for you.

Premium financing is NOT free insurance and it is NOT for everyone.
It’s only relevant to high-net worth individuals that are comfortable with collateralized financing deals.

Is it risk free? 

No, like in any collateral-based financing deal, risks exist. The question is how you manage those risks and whether or not you work with a professional planner who has enough experience to avoid them.

Your financial planner should be able to predict potential risks and take precautionary measures, even when drafting the first case designs.

2 Minutes Explanation

A quick overview of the process

  • Determining insurance protection needs.
  • Performing a financial suitability analysis.
  • An initial design is developed and discussed with you thoroughly.
  • Illustrating and analyzing multiple variations of the design until YOU determine the ideal plan, while we personally explain and walk you through each step of the process.
  • Insurance underwriting process begins (Medical & Financial).
  • Lender financing applications are submitted to seek the most attractive interest rate and terms from multiple lending institutions.
  • An Irrevocable Life Insurance Trust (ILIT) is created.
  • The policy is issued by the insurance carrier.
  • The client provides collateral to the bank and is granted approval for the loan.
  • The bank transfers the premiums directly to the insurance company while the client pays the interest on the loan.
  • Annual reviews occur to examine policy performance and ensure successful loan renewals.
  • When the policy’s cash value has grown to sufficiently cover the loan principal (typically after 10-15 years), it is withdrawn to satisfy the outstanding loan.

WHAT'S NEXT

We’d be more than happy to have a quick conversation.  We’ll work together to find our chemistry and evaluate whether we can deliver our signature positive financial impact for you.