Premium Finance life insurance is simply borrowing money to fund a life insurance policy. It is important since it usually requires the owner to pay considerably less out of pocket as compared to purchasing a permanent plan without using leverage. Quite often, one can purchase permanent life insurance by deploying this strategy where the payor can pay a similar out of pocket cost as purchasing a term policy.
Premium Finance designs come in 2 simple forms. Buyers are seeking permanent death benefit protection or tax-free income, or both. It’s uses are many, but generally fall into one of the following categories:
- To protect one’s family against the loss of life
- To provide liquidity at death for debt and taxes
- To fund executive compensation plans or buy sell agreements
- To provide tax free income in retirement,
- Or, a combination of several of the above
Premium Finance designs typically utilize specialized banks that understand the nature of this non-traditional lending combined with insurance carriers that provide products that fit this niche. In other words, most banks won’t lend for this purpose and most insurance carriers don’t have the right products and knowledge to be a resource for this financial strategy. It is critical to work with specialists when considering premium finance life insurance.