Premium Financing

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Premium Financing Quote Form

What is Premium Finance?

Premium finance is a strategy used by wealthy individuals and business owners to finance premiums for large life insurance policies. The strategy allows a high net-worth individual who has a need for permanent life insurance to use an alternative method for paying the premiums. Rather than using their current cash flow or assets to pay for those premiums, they may choose to finance them from a bank.

Why Choose Premium Finance?

High net worth individuals and business owners likely have multiple options available for how they choose to fund their life insurance policy. While they should always be able to afford the recommended policy in the absence of financing, there are many reasons why they may choose to finance the premium, including:

· Planning around gift limits that may be associated with gifts to an irrevocable life insurance trust (or other trust).

· Cash flow is tied up in business or other investments with greater returns than the cost of borrowing.

· Net worth is comprised of illiquid or emotionally significant assets the client would prefer not to be liquidated for premium payments.

Who is a Good Candidate for Premium Finance?

Individuals who are well suited to the strategy have a need for a large amount of life insurance, and understand both the power, and associated risks, of leverage. Risks associated with premium finance include policy crediting risk, loan interest risk and collateral risk. These risks can have a negative impact on the policy or loan, and can create additional costs.

These costs could require the client to liquidate assets or allocate additional cash flow or collateral to the arrangement. However, when properly structured, monitored and serviced, premium finance may provide significant savings or other benefits to your clients and help them achieve their policy objectives. These can include:

· Minimization of gift taxes due on policy premiums.

· Lower up-front or lifetime out of pocket cost to the client relative to paying premiums in full.

· Flexibility to customize payment plans to meet specific cash flow needs within the limits of the policy being applied for, and the requirements of the lender.

· Potential for crediting rates inside the policy to exceed the interest rate charged on the loan.