Life Insurance Premium Financing

Life insurance premium financing is a method of funding the purchase of life insurance for those individuals who have significant assets, but do not have or want to use liquid capital to pay the premium on the policy. By borrowing the money to pay the life insurance premiums, the insured frees up capital that can be used more efficiently. The use of premium financing may lower out-of-pocket costs and potential gift taxes.

Who should consider life insurance premium financing?

Life insurance premium financing frees up cash flow for the purchase of large life insurance policies.

The best candidates for premium financed life insurance typically have a minimum net worth of $5 million. Collateral for the loan usually consists of personal assets and can be reduced by the cash value in the policy being financed.

What is a typical life insurance premium financing arrangement?

Plan highlights include:

• Target market: at least $5 million estate and a minimum of $100,000 annual life insurance premium
• Frees up business or personal investment capital for more efficient usage.
• Leverages available assets to provide needed insurance coverage with minimal out-of-pocket expenses.
• Potential to reduce gift taxes.
• Loan rate typically tied to a published rate like LIBOR, plus a spread.
• Required collateral can be offset by cash values growing tax-deferred in the policy.
• Can provide substantially greater internal rate of return on the life insurance policy death benefit over non-financed payment methods.

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