Premium Financing is a potential solution for high net-worth clients who have an established need for life insurance, but do not want to liquidate current assets to pay premiums. It is also a strategy for clients who do not want to incur gift tax consequences as a result of paying premiums.
We model these solutions for failure! When was the last time, if ever, you heard that mantra? We take you and your clients financial objectives very seriously and too often “funders” and “programs” are simply focused on the sale. We can tell you from a vast amount of experience what the reality is, these solutions often fail. The marketplace does not like to “sell” that story…
Therefore, when we assist in the consideration of financing structures, we model these for the worst case scenario and if indeed the structure does hold and the clients are willing to sign off on the reality based model, you may in fact have an option.
Traditional Premium Financing is typically defined as a financing arrangement whereby the lender loans money to the client for the payment of premiums on a life insurance policy, and 100% of the loan balance is fully secured by one or several collateral sources. Some, but not all, of those collateral sources might include the life insurance policy’s underlying Cash Surrender Value, cash and cash equivalents, and/or a Letter of Credit from the client’s banking institution.