The Client finances a life insurance
policy through a lending institution.
The collateral needed to secure the loan
can be any number of things.
A Life Insurance Trust must be setup that
will own the policy and pay the premiums.
As the owner and beneficiary of the
life insurance policy, at death, the Trust repays the loan to the lending institution.
At death, the heirs receive the net proceeds
from the Life Insurance Trust.
The collateral is released after the loan
repayment from the Life Insurance Trust.
High net worth individuals understand the importance of preserving, maintaining
and building their asset base. They look for innovative solutions to achieving their overall financial
and estate planning objectives. Life insurance often plays an important role in achieving these objectives,
which sometimes requires a significant financial outlay for premium payments. Premium financing is designed
to help these individuals achieve their financial objectives through an innovative strategy that allows
the premiums on a life insurance policy to be financed through a third party lender. Using this approach,
one may be able to eliminate the need to withdraw funds from an investment portfolio; therefore allowing
it to remain invested for potential continued growth.
The business or high net worth individual applies for a life insurance policy.
At the same time a credit application is provided to the lender. After review by the credit and legal
department, a loan is approved in an amount which will be funded as needed to pay the premiums on the policy.
At this time the loan spread is indicated, any additional collateral requirements are cited and all documents
needed for funding of the premium loan, such as collateral assignment forms and security agreements are
executed. As soon as the life insurance underwriting has been completed, an offer to insure from the
insurance company is tendered, and so long as the proper paperwork has been received in good order by the
lender, the first year’s premium is electronically transferred to the insurance provider.
This program has been specifically designed for those clients with life
insurance needs whose net worth exceeds $5,000,000 and already have the assets to pay for the premium,
but wish to maintain present investments. The life insurance provider requires qualifying both
financially and medically for a life insurance policy.
Once a life insurance policy has been approved, financial underwriting with
the lender will begin by completing a credit life Application. The minimum premium loan is $100,000.
Loans can be tendered to individuals (in California and New York only), corporations, trusts, foundations
and charities. Upon the insured’s death, proceeds are first paid to the lender to repay the loan, then
to the policy beneficiaries, generally income tax-free. Interest on the policy premium loans generally
are paid annually at a rate determined at the onset of the program.
Life insurance premiums are leveraged with interest-only payments.
The borrowing entity’s own capital investment portfolios are retained.
Estate and gift tax exposure is greatly reduced.
Loans mature only at death, and are automatically renewed every year.
Benefits are received generally income tax-free.
Loan repayments are flexible without fees or prepayment penalties.
Policy cash values accumulate income tax-deferred.
Interest Payments are not income tax deductible.
The program is intended solely for high net-worth individuals with assts of $5,000,000 or more.
