Premium Financed Life Insurance
Premium financing is a program where a client borrows money to purchase a life insurance policy. It works like this,
• The client borrows a sum of money each year, usually for a specified period of time.
• The client puts the money into a cash value life insurance policy.
The client is responsible for the recourse loan and may have to collateralize the loan with other personal assets. As long as the “cash value” of the policy remains at a predetermined amount, the client does not have to pay interest.
As long as the cash value of the life insurance policy stays high, the lender is protected and will wait until the death of the client to collect on the loan, which is done from the death benefit. If the cash level falls below the specified amount, the client will have to make payments on the loan.
Most of the time the loans are set up with a requirement for extra collateral; this collateral must be liquid. It can be stocks and mutual funds, but the collateral must be callable. The client consents to this when signing the initial paperwork.
Since these policies require the client to post their “liquid” wealth and allow the lender to have access to that wealth per the lending agreement where such assets could be sold without further client consent, these programs have an air of caution attached.
Side note: Some of you have heard of SOLI (stranger-owned life insurance) where a company will sell such a program to a client on the theory that the policy will be sold to a life settlement company in 24 months. Many of these programs are non-recourse, and the official stance is that such programs will not be around long because they are contrary to public policy.
Advanced Premium Financing Methods Offer Greater Protection
There are options for people who have a legitimate need for long-term life insurance coverage. It must be considered a long-term, sustainable, recourse loan structure that requires the owner to assign minimal collateral to secure premium loans for large insurance policies.
PF is unique in that it is designed to provide large amounts of permanent, premium financed life insurance for high net worth individuals and their trusts (minimum net worth $10 million) with a high probability there will be no out-of-pocket cost to the policy owner.
Most traditional premium finance programs use slow and steady cash building policies. We recommend an aggressive PF program that uses indexed equity life insurance where the policy is funded at or near the MEC minimum. The policy is set up with an increasing loan feature to cover the accrued loan balance each year and a state-of-the-art exit strategy.
If you would like information on our strategy for using Premium Financing to increase your wealth preservation plan, take a look at our Premium Finance Course. You can purchase this downloadable PDF that will give you the latest imformation and will debunk the myths about Premium Financed Life Insurance. Click here
For more information, feel free to call us at 888-916-7070 or sign up for a free 20-minute consultation .
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