Financing Insurance Premiums

The Challenges Of The High Net Worth Marketplace

High-net-worth prospects with large estates present unique challenges for life insurance professionals:

Have a predetermined need for life insurance Prospects have significant estate planning needs

Prospects are reluctant to liquidate investment portfolios or business assets to pay life insurance premiums

The Ideal Client

A wealthy individual or company with a net worth between $10 and $50 million.

Someone that really does not need to borrow at all.

Individual who has the net worth to provide the liquidity at anytime to payoff the entire outstanding premium financing loan.

Prospect may benefit by borrowing premiums, rather than liquidating business assets, other investments or cash flow to pay the required premiums

Most Lenders Have These Basic Client Requirements

Minimum financial requirements to participate in premium financing transaction:

Prospects with a net worth of at least $5 million

Prospects with a predetermined need for life insurance

The proposed policy has an annual premium in excess of $100,000

Benefits Of Premium Financing

Cost of borrowing potentially less than return on existing assets “not liquidated” when compared to other assets liquidated to pay life insurance premiums.

In volatile markets, the current investment portfolio may be protected from poorly timed liquidation.

Potential to borrow funds at competitive interest rates based on PRIME or LIBOR plus a spread (relative to other possible financing options

Lenders typically require that life insurance policy be used as collateral for loan. Additional collateral and a personal guarantee are also required.

Interest in Typical Premium Financing Transaction: Interest can be based on the one-year London Interbank Offered Rates (LIBOR) or Prime, plus a spread determined by the lender.

Loan interest rate is usually fixed annually by the Lender.  Based on fluctuations in Prime or LIBOR, the loan’s interest rate may increase or decrease.” The current LIBOR and Prime rates are published in the Wall Street Journal in the Money Rates section “C”

Is Interest Paid On Premium Loans Deductible?

Interest on personal loans taken out by individuals – including those for the purpose of paying life insurance premiums – is not tax deductible