HomeWho We AreTax SavingsTax And AccountingLeveraging InsuranceLeveraged ArbitrageWealth Management ServicesContact Us

Leveraging insurance is a way to control very large death benefits or tax deferred cash value with a minimum amount of outlay, thereby increasing your cash flow.

We call this method premium financing. Although most people cannot dispute the benefits of life insurance to protect their legacy, no one likes paying for it. Over the years, you have worked extremely hard to build what you have today. Creating your nest egg has been a product of hard work, timing, and utilizing your knowledge of your financial options. Until now, you may have been unaware of a little known options that can maximize the inheritance left to your family. Aside from life insurance's basic function of protecting your loved ones financially after your death, it can also be a valuable tool in estate planning, charitable giving and retirement funding.


The major issue with buying life insurance is paying the premium. Using your assets to pay premium diverts funds from potentially profitable investments. As a result, many people have not adequately protected their financial legacies. Most would buy life insurance if the could make the purchase with favorable financial terms, but traditional funding methods don't cut it.


Premium financing enables people with high net worth to purchase life insurance without liquidating other investments or otherwise changing their normal cash flow. Through this innovative financial arrangement, qualified clients borrow the funds to pay life insurance premiums. They protect their net worth and pass their financial legacy on to future generations, and they do it without altering their other financial strategies.


At its most basic level, premium financing means borrowing money to pay life insurance premiums. To do this, it means taking on debt, something that many of us are reluctant to do. There are alternative methods of paying life insurance premiums without impacting your immediate cash flow.


Benefits of Premium Financing

If premium financing is right for you, it may provide you with several benefits:
  • Potential lower out-of-pocket expenses a compared with traditional premium funding.
  • Gift tax savings when the policy is owned by your irrevocable life insurance trust.
  • Lower impact on your existing personal assets because you are not required to liquidate assets in order to fund the life insurance premiums. 
  • Greater leverage of existing assets by continuing to be able to employ them in your existing financial plan.

·     Possible interest tax-deduction of ordinary business expenses*


Disadvantages of Premium Financing


At the same time you need to be aware of potential disadvantages of premium financing:


  • There is a risk that more assets than initially anticipated will need to be pledged in order to continue the arrangement.
  • If the premium finance loan is called and the policy values are insufficient to pay the loan off, the outside collateral may be called, creating significant gift tax issues.

Eligibility for Premium Financing


Because of its complexity, premium financing is not for everyone.  Since you are financially

sophisticated and you have skilled tax and legal advisors, this strategy may be appropriate for you.


Additionally, lenders require that you meet certain eligibility requirements. In general, to qualify for a premium financing arrangement, you should:


  • Have a need for life insurance
  • Have a net worth of at least $5,000,000 or more.**
  • Have a significant annual income.
  • Have assets sufficient to pledge as collateral for the loan.
  • Meet life insurance policy underwriting guidelines.

  * A structure may be designed to enable a Section 162 business deduction.

**The net-worth requirement is not required for business insurance.


Important Issues in Premium Financing


There are several important issues that you should consider before considering a premium financing arrangement. A comprehensive examination of all relevant issues is beyond the scope of this brochure.



Interest Rates and Loan Structure


The interest rate charges on premium financing loans vary by lender. Generally, larger loans

have lower rates and smaller loans have higher ones. Additionally, lenders may charge a loan

origination fee or other fees that will increase the total cost of borrowing. Each lender will also have their own interest rates. You need to be aware that changing interest rates may increase collateral needs or lower the net death benefit to the policy's beneficiaries.


Financing Options


Each lender will have its own rules, procedures and requirements. In addition, each loan usually has a specific loan term, and your loan may need to be renewed periodically. Many lenders will require you to qualify for loan renewal.