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Ultimate Guide to Premium Financing

What is Premium Financing for Life Insurance?

Premium financed life insurance refers to the option where a policy owner borrows premium monies from a 3rd party lender to finance a life insurance policy.  Premium financed life insurance is an option for policy owners who require a substantial amount of life insurance with large premiums. 

Through financing the premium payments, the policy owner frees up capital as the loan pays for the premiums, while the policy owner may pay the smaller interest on the loan.  The balance of the loan is repaid through a portion of the death benefit of the policy with the remainder going to the policy’s beneficiaries.  

    • The reason high-net-worth individuals and some businesses choose premium financing is a matter of leverage and capital sustainability.  Paying the out-of-pocket costs of premiums on a massive life insurance policy can tie up cash that may be better deployed elsewhere. 

    Through borrowing the capital to finance the life insurance policy from a lender, the policy owner retains the maximum amount of capital for the largest possible life insurance policy.  In a low-interest rate environment, wealthy individuals may borrow at favorable interest rates which equates to keeping a large life insurance policy active for the price of a low-interest rate on the loan.