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Why Should You Get a Premium Finance Insurance

Why Should You Get a Premium Finance Insurance

What is Premium Finance Insurance?

When you borrow money from a third party to pay the policy premiums, you have what is called a premium financing for life insurance. The premium finance loan from policy values will be paid by the owner of the policy once the policy generates enough surplus cash in the following years. A lot of consumers with a minimum net worth of at least $2 million in general, and have a need for insurance and prefer to retain their capital instead of liquidating assets to pay the premiums, utilize this arrangement by life insurance companies.

If you’re in any of the following situations, you may find premium financing highly attractive:

  • In need of a significant amount of insurance for the purposes of estate-planning, accumulating wealth, liquidity at death, protection of assets or business reasons. 
  • You don't want to use your existing capital to pay the premiums.
  • Is insurable at standard rates or better
  • You meet the carriers underwriting regulations


What makes it advantageous?

All parties involved in premium finance insurance like it because it gives them specific advantages.  If you’re a borrower, you are able to keep your assets to invest for higher returns than the cost of borrowing. While if you’re a lender, it will give you a secured long-term loan. Insurance carriers, on the other hand, have no problem with it because of the large premiums and the agents’ awesome benefits from these objectives it continuously provides. The need for outside collateral is minimized while returns are maximized due to insurance companies’ development of specific products exclusively for those who want to finance their policies.


How does it work?

Aside from the peace of mind that both you and your family will gain from knowing that they will be just fine if something unexpected happens, life insurance is also one of the keys to your financial goals. You will be able to address important wealth planning objectives such as protection, liquidity, accumulation, and legacy if you have a properly designed life insurance policy.

It’s very important that you choose the right policy if you want to achieve your goals in a tax-efficient manner. Think about your goals and objects while discussing your need for life insurance. You will learn that each policy can be financed and is specifically designed for every client based on their needs and financial stability. The process is the same as the sale of non-financed policies:

  • You and the agent meet to talk about the type of coverage needed.
  • Both parties will discuss the primary policy being developed
  • Before picking the right plan, several scenarios have to be considered first
  • Insurance underwriting and third-party financing will start
  • All parties will accept the policy being issued.
  • The insurance company will be paid by the lender for the premium and the collateral and interest will be provided by the borrower. The borrower or insured will not be required.
  • The loaned premiums will be refunded by the owner of the policy and pay accrued interest to the lending once enough surplus cash value is generated from the policy.

It’s important to know that no two loans are alike. Therefore, each loan will be tailored to the need of each client. There are various loan commitments that allow the alignment of a long-term need for permanent life insurance with a stable long-term financing strategy.

A lot of people do not completely understand the real value of premium financing. It’s dependence on interest rates or the performance of the policy is their general concern. When looking at life insurance, you must consider premium finance as a model if you have a high-net-worth regardless of the volatility. As much as these life insurance need to address estate issues, business and tax issues, and their legacy, they also want to continue to grow and protect their wealth. They are able to hold onto the cash needed for premiums by financing their policies. Along with this is the freedom to find opportunities that will result in a greater return than the cost of the loan.

Leverage creates wealth and that's one thing successful investor and business executives understands well. So much of the out-of-pocket expenses are greatly reduced through financing and capital for other investments are being preserved for many who need large policies. In addition, premium financing has the ability to offer tax benefits to their estate.

When planning for both your future and your family’s future, financial matters must always be the first in the list. In the right circumstances, premium financing can be a useful strategy although you also need to remember the risks involved just like in any investments. It’s best that you speak with a financial professional today before going forward.

Unifirst Financial & Tax Consultant
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