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Premium Financing
What
It Is
Premium
financing is meant for individuals who have a life insurance need
but either cannot afford the premiums or do not want to liquidate
assets to fund the life insurance policy. In this arrangement, an
individual will take out a loan from a third party lender to pay
the premiums on a life insurance policy.
The life insurance policy would be used as collateral for the loan.
How
It Works
The
applicant will apply for an insurance product or any
non variable product and once the policy has been underwritten,
the applicant will apply for financing and the terms will be finalized.
The third party lender will set an interest rate and the payment
schedule for the loan. In most instances this will be the cash value
of the policy.
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What
Are The Benefits
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Eliminates the requirement for reducing discretionary
income and other assets to fund the policy
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Multiple insurance policies can be attached
to a single premium finance contract allowing for a single payment
to cover all insurance coverage
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In case an ILIT (irrevocable life insurance
trust) is being used, the payment of premium would in most cases
avoid gift taxes.
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After holding the policy for a specified number
of years it can be sold to a financial institution. The financial
institution (the buyer) would be the highest bidder of the policy.
The sold policy would then generate a cash benefit that could
be used to either help cover for Long Term Care expenses or
to cover any other current expense the individual (the seller)
or business may have |
How Would I Qualify
After the applicant fills out
a basic health questionnaire we find an insurance carrier that would
deliver the best chance of approving a policy with the best possible
terms. In some cases we receive offers from multiple carriers. In
other cases we receive an offer from only one carrier.
Even while the applicant by no means have to be in perfect health,
we also have had cases where the applicant received no offers. The
“perfect” applicant for this program would be somebody
who is over the age of 70, non smoker and a combined estate of at
least 1 million dollars.
The whole process is handled by us, from having the policy approved
to finding a third party lender to fund the premiums.
Summary
Through
premium financing an insured can borrow funds from a third party
lender to pay for their life insurance premiums. This reduces/eliminates
their potential out of pocket expenses as well as their potential
gift tax costs. After a specified holding period has been met, the
policy owner has the option to sell his/her policy for a cash benefit.
This arrangement is also called life settlement option.
Life settlement option can trigger “transfer for value rule”
which can cause a taxable event. Consult with an tax advisor before
utilizing life settlement options.
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