Premium Financing Insurance

Premium financing is a method of funding life insurance premiums using a bank loan. The insured (or a trust, such as an ILIT) takes a loan from a lender, pays the policy premiums with the borrowed money, and then repays the loan either during their lifetime or from the policy’s cash value or death benefit.

Premium financing is suitable for clients who:

 - Policies worth $5M, $10M, $20M+ for estate and wealth transfer.

- They prefer not to tie up cash in premium payments.

-  Indexed or variable universal life policies can grow and help repay the loan.

1. Life Insurance Policy Selected
   - Typically, an IUL (Indexed Universal Life Insurance) or VUL (Variable Universal Life Insurance) with strong cash value potential
    
2. Loan Application & Approval
   - A bank or specialty lender provides financing. The borrower pays only the loan interest annually.
    
3. Premiums Paid by Lender
   - Instead of using your own cash, the lender funds the policy.
    
4. Collateral Required
   - The borrower must provide collateral beyond the policy cash value, usually liquid assets or marketable securities.
    
5. Loan Interest Payments
   - The borrower pays interest each year. Sometimes interest is capitalized (added to the loan balance).
    
6. Exit Strategy Defined
   At a future point (example: age 65 or 10–15 years later):
   - The policy’s cash value can repay the loan, or Other assets can be used, or
    

- Use a lender’s money to purchase a larger insurance policy without liquidating your own investments.

- Ideal for clients with illiquid assets like real estate or business ownership.

- Owning the policy in an ILIT can help pay estate taxes while keeping the benefit outside the taxable estate.

- If policy cash value grows faster than the loan interest rate, the strategy becomes very efficient.

If loan interest increases, the cost of financing rises.

If the policy performs poorly, you may need to post additional collateral.

Banks typically require significant liquid assets.

Premium financing is a multi-year strategy and not suitable for clients with limited liquidity or changing financial situations.

The loan must be repaid — either by cash, collateral, or policy values.