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The Benefits and Criteria for Premium Financed Life Insurance

Premium financed life insurance has seen increased interest over the past several years in large part because it offers high net worth individuals flexibility in how their capital is deployed.  Individual coverage benefits from using premium financing to secure large life insurance policies run the gamut from estate tax relief to tax-free death benefit capital for heirs and beneficiaries.  

There are many uses for premium financed life insurance and for the right individual, it can be a game-changer when it comes to obtaining large and often expensive life insurance policies.

Premium financed life insurance for individuals can protect liquidity

One of the most obvious benefits of premium financed life insurance centers around the retention of liquid capital.  For very large life insurance policies, premiums can be quite costly.  Keeping a policy in force for the duration of an individual’s life can drain precious capital in premiums.  This is where premium financing can be of the greatest use.  

How it works

An individual with a net worth of at least $5 million dollars requires a large life insurance policy to protect their assets and assist their heirs.  Instead of purchasing a large policy and paying the high premiums, the individual works with an advisor to obtain a policy, and then procures a loan through a premium financing company from a lender to pay the premiums.  In return, the individual may pay the interest or a portion of the premium on the loan.  

Liquidity is the key

This is where liquidity comes into play.  The loan interest is often substantially less than the price of the premium.  Through the use of premium financing, the individual is able to obtain an expensive life insurance policy and maintain the integrity of the policy by choosing to possibly pay the interest on the loan.  This means that the individual can spend the money that would have gone towards the premium payments on more rewarding investments and life needs.  

When the individual passes away, if the loan has not been repaid already, the death benefit from the policy will cover the balance of the loan.  The remainder of the death benefit will pass on to the beneficiaries of the policy. 

scrabble letters of the word 'trust'

Trust owned, premium financed life insurance for large estates can hedge against the Estate Tax

One of the more common uses of premium financed life insurance involves estate planning.  In the United States, large estates are taxed upon the death of the estate holder.  This tax is passed on to the heirs of the estate.  It is not unusual for the heirs to be forced to liquidate assets in the estate in order to pay the estate tax.  

Premium financed life insurance allows the individual to purchase a large enough policy that bestows a significant, tax-free death benefit to the heirs that will help them cover the cost of the estate tax.  Life insurance policies that are placed into a family trust are valuable in that the policy should not count towards the value of the estate itself.  

Working with a skilled estate planner and a reputable premium finance company can ensure that a person’s heirs are not burdened with steep taxes when their loved one passes away.

Are there any limitations on premium financed life insurance policies?

Premium financed life insurance is not suitable for everyone.  In fact, in order to be eligible for premium financing, one should have a net worth of approximately $5 million dollars and may also require significant assets in order to collateralize the lender’s loan 

If a person is not in perfect health, they may still be able to leverage their premium financing and obtain a life insurance policy.  In many cases, the ability to finance the higher premiums associated with a person in less than perfect health can help offset the risk to the capital they would otherwise be burdened with. 

Each loan has individual terms and conditions that apply.

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Insurative is committed to helping clients find the perfect solution for their needs

Insurative has helped countless clients obtain significant life insurance coverage to protect their financial legacy for their families and loved ones.  Our team works with estate planners, lenders, and life insurance experts to facilitate and administer premium financed life insurance policies crafted specifically for each client and their unique needs.  Reach out to a team member to learn more about our process.   

premium financing for businesses picture of a man walking up a staircase of words

Premium Financing as a Tool for Business Liquidity

For more information contact Insurative Risk Solutions US, Inc. at 877-281-1311

Many business owners have had encountered enormous challenges over the past few years.  Reeling from pandemic-induced lockdowns, the subsequent labor shortage, and inflationary pressures, the day-to-day struggles of preserving enough liquidity to keep the business running have been seriously compromised.  At the same time, procuring and retaining top talent has meant offering stability, meaningful benefits packages, and competitive salaries.  Now more than ever business owners must find creative solutions to keep the lights on and the cash flowing.  For the right situation, premium financing can offer a way to preserve cash flow while protecting company assets.

Premium financing in a nutshell

To understand premium financing, let’s break it down by the words themselves.  

Premium 

Premium refers to the money spent to keep a life insurance policy active.  This can be paid monthly, in a lump sum, or other scheduled payment arrangement.  In return for paying the premium, the life insurance policy remains active for the business or individual.

Finance

Finance refers to the financing acquired to pay the premium in the form of a loan to the business or individual.  

With premium financing, a business purchases a life insurance policy through a life insurance carrier and obtains a loan from a lender in order to pay the premiums on the policy.  In order to secure the loan, collateral is required.  In some cases, the cash value of the life insurance policy can partially collateralize the premium loan.  As with most loans, the lender charges interest.  With premium financing, a borrower may be responsible for paying this interest to the lender.  The loan will be repaid to the lender on terms agreed to by the business or from the cash benefit of the insurance policy itself.  

a flower growing out of a stone in reference to premium financing helping save capital for businesses

Premium financing can free up cash for other business needs

For any business, the cost of life insurance can result in the loss of available cash to fund other investments and services.  Liquidating assets to pay life insurance premiums may put the business at a financial disadvantage when their cash is leveraged elsewhere in the company.  This is the sweet spot for premium financing.  

The company can keep more of its money in the business to make payroll, expand services, invest in infrastructure, etc.  At the same time, the policies themselves protect the business and its employees from the impact of future harm.  

Today’s benefits are tomorrow’s stability

In order to recruit and retain top talent in a business today, benefits packages have become nearly as important as competitive wages.  Offering comprehensive life insurance policies to key employees can create a serious cash flow burden on a company of any size.  Premium financing may solve the cash flow problem while still offering attractive benefits to keep these valuable employees in-house and less likely to move to a competitor.  

A business is only as strong as its team.  The high costs of turnover are well documented in every industry.  Premium financing allows businesses a way to compensate employees so that they stay while reducing the immediate expenses of offering benefits suited to their needs.

picture of a person climbing up a cliff in reference to premium finance companies helping business overcome obstacles

Premium financing requires diligent fiduciary-minded partners

There are many factors that can determine whether or not premium financing is right for any individual business.  It is important to lean on the expertise of financial business planners in order to understand whether it is the right move economically.  The team of experts at Insurative is here to help business owners understand the impact that premium financing can have on their bottom line.  

As the world comes out of these challenging times, premium financing may be more relevant to maintaining the financial and competitive integrity of businesses that suffered hardships over the past several years.  Insurative is here to help businesses with those hardships and offer cashflow-positive solutions for their recovery.  

For more information contact us at 877-281-1311 or visit our website at insurativeus.com.

two hands holding a small plant representing using premium finance and life insurance to support charities

Season of Gratitude: Using Premium Financing to Enhance Charitable Giving

As winter approaches, colder weather and festive holiday celebrations bring people together.  The season itself invites a spirit of philanthropy; a spirit of giving and gratitude.  It is also a season marked for charitable fundraising as non-profit and philanthropic organizations around the country reach out to their network for continued support.  Passionate donors are sometimes limited in their ability to provide the kind of future financial stability for the causes and institutions they champion.  One possible solution could be to leverage premium financing in order to secure a financial benefit for a charity from a life insurance policy on the donor.  In this way, a person could use premium financing to enhance their charitable gift while retaining their liquidity.

Picture of a sign that reads 'make the world better' referring to using premium financing to help charities

Life Insurance as a legacy for charitable causes

Purchasing a life insurance policy and naming a specific charitable organization as the main beneficiary of the death benefit is a concept that has been around for years.  When the policyholder passes away, the charity or organization receives the death benefit to fund its activities.  It is a way for donors to continue supporting their interests beyond their lifetime.  

One consideration when utilizing life insurance to support charitable giving is the impact that premiums may have on the donor’s liquid assets.  Large insurance policies require significant funding that could threaten to drain cash that could yield a higher return on value if invested in the market.  The donor would need to consider the value of purchasing a life insurance policy versus simply investing the money into their existing portfolio.  This is where premium financing can make the difference.

Premium financing covers the cost of premiums and frees up cash-on-hand

Premium financing allows the donor the ability to use a lending institution to loan the total premium cost of the life insurance policy to the policyholder, requiring less money upfront.  The policyholder offers collateral to secure the loan and the life insurance policy is kept in force through the premium payments to the insurer.  

The result?  The policyholder is able to keep their liquid assets intact while securing a life insurance policy that ultimately benefits their chosen charity or organization.  Upon the death of the policyholder, the lender has recouped the balance of their loan plus interest and the remainder of the death benefit is given to the charity.  

picture of snowflakes representing the season of charitable giving with life insurance

Premium financing opens many opportunities for those who want life insurance and financial flexibility

Premium finance as a tool to maintain financial flexibility while enjoying the peace of mind and benefits of owning a life insurance policy can be a perfect fit for high net worth individuals looking to leave their loved ones or their beloved philanthropic ventures in sound financial standing after they are gone.  

As the season of giving and gratitude approaches, let us know how we can help structure a policy to support charitable organizations through premium financed life insurance.  Season’s greetings!

*Independent legal and tax advice should be sought before implementing any strategies or programs.
Protect Your Liquidity with Premium Finance

Premium Financing: Protecting Liquidity

Let’s talk about premium finance.  People work hard to provide the best life possible for their family and loved ones.  The ability over the years to take intelligent risks, apply wise investment strategies, and work long hours has resulted in careers to be proud of and net worth’s that need to be protected.  It’s well known that life insurance is a sound component of any estate planning strategy and that a policy should be reflective of financial success.  However, the premiums on such a policy could severely limit liquidity and the capacity to keep the assets working. Fortunately, there is a solution, premium financing can be used as a tool to protect liquidity, allow assets to continue to work, and protect financial legacy.

Premium Financing 101: Setting Up Painless Premiums

Annual Premiums on large life insurance policies can be in the hundreds of thousands or more and they represent significant capital that could otherwise be invested in the market and other assets.  With premium financing, a third-party lender (commonly a bank) pays the policy premium leaving the borrower responsible for paying the interest on the loan.  This frees up significant capital and allows the borrower to protect their liquidity.  Policy beneficiaries receive what is left of the policy benefit after the loan has been repaid. 

Retaining Capital: Go With the Flowchart

Breaking down the diagram above, the borrower can see that through premium financing, they can retain more of their capital and assets while their beneficiaries will receive the death benefit.  This is made possible by a loan from the lender to pay the policy premium while the borrower may elect to pay interest on the loan or defer interest, these options can be decided upon on an annual basis.  Obviously, premium financing is not designed for everyone.  There are many requirements that must be met to secure premium financing in order to satisfy both the insurance company and Lender requirements.

How We May Assist in Protecting Liquidity?

If a borrower needs to learn more about premium financing, contact us.  IPFM is a premier premium finance company.  The Insurative companies have over 15 years of experience in the industry and have risen to provide the best boutique loans and services available without rival.  We will customize loan designs so that estate liquidity can be maintained and enhance the financial legacy left to heirs. 

We look forward to working with you.