Terry Bork CLU ChFC, President   |   Aurum Insurance Services   |   D: 440-605-7230   |   C: 440-666-6032   |   tbork@auruminsurance.com   |   www.auruminsurance.com

Premium Financing—Leveraging Your Assets

If you are a high net worth or high income individual who seeks to make large premium deposits into a life insurance contract, but have most of your wealth tied up in business interests or investments that are unavailable for premium payments, Premium Financing can be a solution.

Premium Financing is for people who:

  • Have a net worth of $5 million or more, or an income of $1 million or more
  • Have a desire to make significant premium deposits into life insurance
  • Have a mix of assets that is not liquid, and is unavailable for premium deposits
  • Lack the disposable income required to make desired premium deposits
  • Understand and appreciate leverage and interest rate risks

The Potential Benefits of Premium Financing

  • Ability to make large premium deposits without liquidating assets
  • Interest payments are less than premium payments, reducing cash flow requirements
  • Strategy can cover multiple policies
  • By borrowing premiums, you can avoid immediate capital gains from liquidating assets to pay premiums
  • Leveraging can increase the IRR on cash value and death benefit
  • Borrowing premiums can free up assets and income to be used for other purposes

Additional Considerations

  • Because the lender’s interest rates are usually adjustable, Premium Financing involves interest rate risk
  • Cash value in the life insurance policy may fluctuate, and require additional future premium deposits
  • Interest on policy loans used to purchase personal life insurance does not qualify for an income tax deduction
  • Additional collateral, besides policy cash value, may be required to secure the loan, and could need to be liquidated to pay off the loan balance
  • Liquidation of collateral could cause adverse tax consequences

How Premium Financing Works

  • Premium Financing is similar to a line of credit.  A commercial bank lends funds that are used to pay premiums on the policy
  • Premium Financing requires ‘pledging’ assets as collateral to borrow the funds that pay the premiums
  • The loan is paid back based on the terms agreed to within the loan contract, using the policy’s cash value, death benefit, or other assets

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