Life insurance is a critical part of any comprehensive financial picture. Structured properly, life insurance can provide liquidity to cover and minimize estate taxes, enhance your estate for beneficiaries, and provide a lasting legacy to your family or a charitable organization.

However, for the high net-worth individual, adequate life insurance coverage usually requires significant premium payments. You may not want to liquidate high interest-earning assets or sell stocks or a business interest in order to pay those premiums.

Premium financing is a strategy that allows you to purchase the life insurance needed to accomplish your financial goals without having to liquidate your assets.  Simply put, you would borrow the money to pay the premiums on the life insurance policies and pay back the loan from the death benefit or another exit strategy.

Premium financing is a strategy designed for those who can afford to pay premiums but prefer to leverage a third party's money to fund a large life insurance need. It is set up as a loan arrangement in which funds used to pay premiums on a life insurance policy are borrowed from a third-party lender, usually a company unrelated to the carrier issuing the life insurance policy.

In most cases, the client either is established as an irrevocable trust or may be a business entity.  The client is often required to personally guarantee the loan. The borrower either pays loan interest to the lender with funds gifted to the trust by the client or accrues the interest.

Eventually, the trust, and ultimately the trust's beneficiaries, will receive the policy's death benefit minus any loan principal, fees, and accrued interest outstanding at the time of the insured's death.

The advantages of financing a life insurance policy include:

• Obtaining coverage without liquidating highly appreciating, invested assets.

• Using a loan at lower interest cost than the appreciation on the retained assets to fund a life insurance policy.

The following articles may be of assistance in helping you understand this financial opportunity:


             New York Times Article                Wall Street Journal Article