Premium Finance

What is it?

Premium Finance is not a type of insurance, but rather a method of paying for insurance where there should be an established need for permanent life insurance coverage. The key is to make sure that there is a suitable situation for using premium finance, and that the client will qualify for the program. This concept is not for all situations, and we use a lot of care to determine if this concept will meet the needs of the client. We work with a number of programs, and a variety of lenders as well as a large choice of carriers. All of the programs that we work with are approved by the carriers, and in most cases have been integrated into an underwriting process.

Who qualifies?

This depends on the program that is being used, but each type of premium finance program has minimum standards in order to have a client qualify. Once a need for permanent insurance has been determined, there are a host of other factors which play into the decision to utilize a specific concept. The net worth of the client, the underwriting offer that can be obtained based on health, and the goals of the client are very critical in making this choice.

How does it work?

The generic concept of premium finance is actually quite simple, however each program has its own nuances and suitability is of the utmost concern. The client establishes an irrevocable insurance trust (ILIT), which borrows premium payments from a lender, and then pays the premium on the contract that it owns (new contracts only). At some point, depending on borrowing rates and performance of the contract, the ILIT will borrow from the cash value of the insurance contract to pay off the loan and accumulated interest. This is a very generic description, and in practice there are many variations depending on the program chosen. All premium finance programs require a client to add collateral to the program in order to make the loan work, and the amount and type of collateral varies by the program chosen (a recourse loan).

Summary

As stated above this is a generic explanation of a premium payment option. This type of program should only be used after the need for permanent coverage has been established. A client is well advised to review complete documentation for the program presented, and consult with his or her planning and tax advisors before establishing this type of premium payment scenario. We have designed a system that will guide a client through this process, as well as review the other premium payment options. We will meet with the client's advisors, and provide a collaborative experience which will help the client to determine if this type of program is suitable for their needs.