Build a substantial asset without draining your liquidity.
For individuals with significant net worth, a lender can pay the premiums on a large life insurance policy. Your capital stays at work in your business and investments, and the policy is designed to build value and protect your family.
Why use your own money when the bank will?
A large, properly designed life insurance policy is one of the most efficient ways to protect an estate and build tax advantaged value. Paying for one in cash means pulling capital out of a business or portfolio that is earning more.
Banks have always used leverage to put other people's money to work. Premium finance applies the same principle to your own balance sheet: the lender writes the check, you keep your capital deployed, and the structure is designed from day one with a plan to repay the loan.
Three parties. One design.
A lender funds the premiums. You, or more often your trust, own the policy. You pledge collateral, which can be reduced as the policy's value grows.
In the illustrated design, the loan is repaid from policy values or other assets at a planned point, and the remaining coverage and value stay with your family.
Leverage, with the exit drawn in advance.
Preserve liquidity
Your capital stays in the business and investments you know, instead of funding premiums.
Put the spread to work
The policy is designed to credit more than the loan costs over time. That spread is not guaranteed, so we stress test it.
Estate liquidity
The death benefit generally passes income tax free and can provide cash for estate taxes, so heirs are not forced to sell.
A planned exit
Every design includes how and when the loan is repaid, from policy values, other assets or the death benefit.
What every client should understand first.
Leverage works in both directions. We model each of these before you commit, and show you the result in writing.
- Interest rates can rise. Most premium finance loans float. Higher rates mean higher interest costs.
- Crediting can fall short. If the policy credits less than illustrated, the gap between policy value and loan widens.
- Collateral can be called. If that gap grows, the lender can require additional collateral.
- Terms can change. Lenders review loans periodically and can change terms or decline to renew.
- High net worth individuals who need significant life insurance, typically with a net worth of $2.5 million or more if under 50, or $5 million or more if 50 and over.
- Business owners who would rather keep capital in the business than fund premiums.
- Families planning an estate who want liquidity at death without selling assets.
- You do not have the liquidity to post collateral if it is called.
- You are uncomfortable carrying a loan for ten years or longer.
- You need the strategy to work without any market or rate risk.
Before you decide.
Who owns the policy?
You can, but it is often held in an irrevocable life insurance trust so the death benefit stays outside your taxable estate. We design this with your estate attorney.
What is used as collateral?
Typically cash, securities or a letter of credit. As the policy's cash value grows, the collateral required is designed to decrease.
How does the loan get repaid?
Each design sets out a planned exit: policy values, other assets, or at death from the death benefit. We show you each option in the illustration.
What if rates rise sharply?
We model higher rate scenarios before you commit. Options include paying interest out of pocket, posting more collateral or repaying part of the loan early.
Do I qualify?
As a guide, premium finance is typically suited to a net worth of $2.5 million or more if you are under 50, or $5 million or more if you are 50 and over. Lenders also look at liquidity and the size of the policy, and the insurer requires medical underwriting. A consultation is the quickest way to find out.