Structured Premium Financing Program.
Premium Financing has been available for over 50 years, but was primarily used for the ultra-wealthy as a way to pay estate taxes with no money out-of-pocket.
For example: $100 million estate x 40% = $40 million due at death to pay federal estate taxes. (Current Federal Estate Tax exemption not included.)
Today, we call it “Structured Premium Financing”, because we’re able to use the same chassis for paying estate taxes with little to no money out-of-pocket, and use it for other financial needs, such as: Key Person Policies, Buy/Sell Agreements, Debt Reduction, Annual Contributions to non-profit organizations, churches or universities with little to no money out-of-pocket for the donor, Tax-Free Income Replacement, as well as Employee Retention for companies, corporations and universities who want to recruit and retain the BEST people in their industry.
Premium Financed Life Insurance
How Does it Work?
Premium Financing is a strategy whereby a qualified borrower accesses third-party financing to pay for large life insurance premiums.
The insurance companies have constructed specific products for these financed plans to minimize outside collateral needs and maximize returns. This allows individuals and businesses to leverage current assets, maximizing returns via a predetermined cash flow.
Premium Financing Strategy
Every premium financing strategy is custom-made for each client, with every strategy following a similar path.
Rates and carriers may vary:
1. The process begins by determining the business owner's life insurance coverage needs and financial suitability.
2. A preliminary case design is developed and discussed.
3. Many variations of the design are run until the ideal plan is picked by the client.
4. Formal life insurance carrier underwriting and bank financing applications begin.
5. The policy is issued by the insurance carrier. The financing bank requires the owner of the policy be an Irrevocable Life Insurance Trust (ILIT), or an LLC.
6. The client provides collateral to the bank in the years when the loan balance is above the cash value inside the policy (usually 8-12 years if insured is under age 60). The shortfall collateral consists of cash and cash equivalents.
7. When approved the bank wires the premium payment(s) to the life insurance company.
8. Annual reviews should be conducted to evaluate insurance policy performance and ensure successful renewals.
9. Once the policy generates cash value above the loan balance the owner can request tax-free loans based on the excess cash value inside the policy beyond the loan balance.
Why is Premium Financing such a valuable financial tool?
With Structured Premium Financing, the financial advantages are easy to see.
Reduces or eliminates the out-of-pocket cost for business owner life insurance.
Retains capital for other growth opportunities.
Maximizes potential tax advantages.
Leverages net worth to compound and grow wealth.
Loans are secured, fully collateralized through a combination of policy cash surrender value and other acceptable collateral.
In A Nutshell
Premium Financing is a method to fund premiums to support genuine insurance needs for clients that can effectively use leverage, while capitalizing on the possible advantages and accounting for the inherent risk.
The Ideal Premium Financing Consumer:
Insurable individual up to age 60
Annual income requirement of $150,000 for each participant
Individuals who are trying to obtain tax advantaged supplemental income or death benefit for estate planning.
Insured who meets carrier medical and financial underwriting requirements.
Corporate entities with minimum annual revenue of $750,000 for the last two consecutive years.
Insured who meets Lender's financial underwriting requirements.
Liquid Net Worth requirement (125% of the cumulative premium payments in the first 5 years minus the contributions made by the business owner).
Individuals and companies that understand the use of leverage.
Most Common Candidates
Corporations and Universities who want to retain their best people
Doctors and Surgeons
Real estate investors
Privately held business owners
Hedge fund owners and managers
Private equity firms