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Home » Premium Financing » Is premium financing suitable for you?

Is premium financing suitable for you?

February 5, 2019 10:04 am

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.

Ran Regev, RSB Life

Main benefits

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

Your Obligations

  1. You must understand the importance and have the need for a large amount of life insurance, regardless of how you plan to fund it.
  2. Your net-worth must be over $5M.
  3. You should have the ability to provide collateral for the years where the loan balance is more than the policy’s cash value.
  4. 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.

Quick 2 Minutes Case Study

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.

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.

Consult OUR TEAM

Solutions mentioned here are generic and are not a one size fits all solution. Schedule a call with us and we’d be more than happy to explain further:

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Strategy

"Our strategy is an opportunity for your family or business to purchase a very large amount of life insurance that when properly designed and managed will create a substantial tax preferred supplemental income stream with a low initial out of pocket cash commitment. "

Ran. RSB Life

"The benefits of financing your life insurance premiums is a powerful option."

Rita. RSB Life

Premium Financing
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5310 NW 33rd Avenue, Suite 206
Fort Lauderdale, FL 33309
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A person’s life is often compared to the life cycle of a tree. From a sprouting seedling to a sprawling forest, we grow with each graduating phase.

Don’t lose the fruits of your labor. Instead, learn more about premium financing from our dedicated team today.

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©2020 RSB Life. Do Not Copy.
This material was prepared for general distribution. It is being provided for informational purposes only and should not be viewed as Tax Advice. If you need advice regarding particular tax needs, contact a tax planning professional. We are not a lending institution.

Premium financing programs are subject to various risks including: Interest rate risk - most programs use a floating rate; Lender risk - the strength and stability of the financial institution providing the financing; Carrier risk - the strength and stability of the insurance carrier issuing the policy; Policy performance risks - failure of the policy to perform as originally illustrated, may result in additional premiums and loans and collateral risk - the value of the collateral used may decrease resulting in the need for additional collateral to secure the loan, or the lender calling the loan. There may be other risks as well.
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