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Ultimate Guide to Premium Financing

What does it mean to use premium financing for a life insurance policy?

Individuals and families that require substantial life insurance and asset protection may choose a premium financed life insurance policy that frees up liquidity while still providing significant policy benefits. 

Through borrowing monies from a lender to finance an insurance policy, the policyholder may be able to secure a larger policy while paying the Lender a simple (and possibly lower) interest rate on a loan.  The loan covers the policy premiums and the policyholder may pay the interest on the loan.  

At the end of the loan term, the policyholder can repay the balance of the loan or structure a new loan with the lender.  Loan repayment can also occur if the insured person passes away, by making use of a portion of the death benefit.

  • High-net-worth individuals can require a substantial amount of life insurance to adequately cover their estate.  The premiums on a high-value life insurance policy require large cash payments.  Cash paid toward the premiums could be better used in other investments and assets.  Additionally, an individual may want to avoid having to liquidate assets in order to pay the premium.

    In a low-interest-rate environment, however, wealthy individuals can borrow money at more favorable rates allowing them to borrow the cash for the policy premiums while possibly paying only the interest on the loan.  This frees up liquid capital for alternative investments and uses.