Financial advisors have long understood that a holistic approach to their client’s financial security is the prudent expression of their fiduciary responsibility. Instruments that help facilitate the safe passage of assets through turbulent markets share space with life insurance policies that help steady the ship when major life events threaten liquidity. For high net worth (HNW) individuals, family-owned business interests, and family offices, however, the stakes can be even higher. Premium financed life insurance is a dynamic financial design tool that can help shape not only the end game of closely held assets but also may enable the insureds the ability to maintain precious liquidity while they are still alive. Having the conversation about premium financed life insurance with eligible clients requires an understanding of the process involved.
The best advisors seek out better opportunities
High net worth individuals should be able to rely on their advisors to guide their assets. While most advisors understand the importance of life insurance policies as a liquid hedge against future estate taxation and shield for future asset liquidation, many are hesitant to tie up the cash assets of their clients with costly premium payments.
It may be beneficial for HNW individuals to purchase large life insurance policies in order to meaningfully impact their estate after they have passed away. Premium payments on such policies could risk draining capital that may result in the liquidation of other assets in order to cover the cost of the policy. Advisors are understandably reluctant to recommend tying up cash in a life insurance policy that may be making money elsewhere.
The best of both worlds: Premium financed life insurance
A premium financed life insurance policy may not rely on the client to fund the policy but rather on a 3rd party lender such as a bank to cover the insurance premiums. This frees up cash for the client while simultaneously protecting their estate through a tax-friendly, permanent life insurance policy. To understand how this process works, let’s have a quick rundown of the basic steps involved.
- A life insurance policy is applied for and upon carrier approval, the policy is issued and may be owned by an individual or a trust.
- The insured successfully applies for a premium finance loan that may assist with the cost of the premiums on the life insurance policy. There will be collateral required from the lender to obtain the loan.
- The premiums are paid to the life insurance company through the funds acquired in the loan.
- The policyholder can pay the interest on the loan instead of the much higher premium costs.
While the process appears fairly straightforward, it is best managed with the assistance of professionals who are adept at designing premium financed life insurance loans in concert with the policyholder’s financial advisor. A properly structured premium finance loan can have the benefits of substantial policy coverage with minimal cash outlays. However, many eligible clients are not aware of premium financing for life insurance. This is where having the conversation with their clients can help advisors round out their client’s overall financial future.
Which clients are eligible for premium financed life insurance?
To know whether or not a client meets the requirements for premium financed life insurance, contact the team at Insurative Premium Finance, Massachusetts (IPFM) for a more detailed understanding. There are some essential caveats to being eligible to take advantage of this kind of loan arrangement.
Typically, an applicant for a premium financed life insurance loan arrangement should possess a net worth to support the loan for the life of the loan.
We can help get the conversation started
IPFM has specialized in innovative life insurance options and has helped structure life insurance premium finance loans for many years. Our team of experts encourages and assists advisors in understanding the benefits of a custom loan for their eligible clients. IPFM works with lenders and other leaders in the premium financed life insurance marketplace to provide and place policies and structure loans crafted for HNW individuals, businesses, and family offices.
Contact us to find out how we can help identify and educate the clients in your book of business that may have the most to gain for a premium financed life insurance policy.
For more information contact us at 877-281-1311 or visit our website at insurativeus.com.