Premium financing protects your assets and your liquidity.
Premium financing allows you to secure significant life insurance protection without taking money away from your other investments. Essentially, it is a transaction structured with a 3rd party (such as a bank) that finances large premium payments so that you can keep your money invested in the market or where you choose.
You finance your home, company, and other assets. Why not your life insurance?
In order to keep your money working for you, you finance your largest assets through a bank or lender. You may not have known that you can do the same thing with high-end life insurance policies. This way, you can protect your estate and your legacy while keeping your cash on hand to invest where you like. Let’s break it down a bit further.
Let’s assume that you have an estate that requires 10 million dollar’s worth of protection. Traditionally, you might require a life insurance policy with annual premiums of around $500,000 dollars. $500k is money that you could be investing in the market, real estate, or family needs. This is where premium financing steps in.
- Working with your financial advisor, you could structure a financing agreement where the Lender pays your policy premium over 5 years.
- The lender pays $500k per year towards your premiums for 10 years.
- In year one you might pay interest of 3% to the Lender of $15,000.
- This frees up $485,000 dollars the first year, that you would have been paying towards your premiums.
- As the loan matures additional liquidity will be recognized.
- The premium finance loan must be fully collateralized at all times and will include standard loan terms and conditions.
This is a perfect solution for high-net-worth individuals who want to keep their financial options open while protecting their assets and family. In this scenario, everybody wins. The lender is financing with a guaranteed return, the insurance carrier is selling a substantial policy, and you are able to protect a large estate without burdensome out-of-pocket cash being tied up in premiums.
Premium financing involves complex and high-level negotiations with lenders and carriers. Insurative has decades of experience handling these proceedings. Contact us to learn how your estate planning could benefit from a premium financing solution.