Premium Financing: An Ideal Way to Pay for Life Insurance
(Part 1)


Life Insurance Premium Financing

Often the highest hurdle facing any senior seeking life insurance is the expense of the annual premiums. These costs can be challenging even for wealthy seniors as substantial amounts are often held in illiquid, non-income producing assets (e.g., real estate). The large premiums associated with life insurance are a drain on liquid assets and cash, rendering polices less attractive or just plain unaffordable.

However, within the last decade, many seniors have found paying for their insurance can be far less of a burden. As a matter of fact, many seniors have found a way to increase cash flow and get the life insurance they want with the smart use of life insurance premium financing.


What Is Life Insurance Premium Financing?

Simply put, life insurance premium financing is an easy, safe way for today’s seniors to afford the life insurance they need. Just like you might use a mortgage to buy real estate, a senior can purchase a high-value life insurance policy with lower out-of-pocket expenditures through life insurance premium financing.

Life insurance premium financing is not a one-size-fits all funding option. Depending on the objectives of the senior, different options may be appropriate. There are many choices and it can be a complex process.  It is critical for seniors to have an experienced life insurance broker assist them in evaluating the various options that are available.

As with most finance arrangements, there is some form of collateral required by the lender. The form and amount of collateral required by the lenders varies as does the loan program terms and conditions. However, premium financing breaks down into three main categories: full recourse, non-recourse, and hybrid premium finance.

n all hybrid premium finance programs the policy itself is collateral for the loan; the main differences between the categories is the amount of additional collateral that must be pledged, and whether or to what degree a personal guarantee is required on the part of the insured to guarantee repayment to the lender.


Is Life Insurance Premium Financing Right for You?

Regardless of the final decision on how to pay for life insurance, a senior must know what the options are in order to make an informed decision. Make sure your agent is able to present alternatives for consideration.

The answer to whether or not life insurance premium financing is right for you is multi-tiered. First, if the premium expense is a greater amount than you are comfortable paying, you should look at other life insurance premium financing options. Indeed, even if premiums are affordable, life insurance premium financing might still be to your financial advantage. It is always worth finding out what loan programs may be available to you.

What kind of life insurance premium financing, however—full recourse or hybrid premium finance—depends on a number of variables. The only way to determine if there is a program that is right for you is to have the premium financing experts research the market. There are dozens of different life insurance premium financing programs available and it is likely that you and your premium financing experts will be able to find a premium financing option that is suitable for you.

Life insurance has always been the foundational product to protect and preserve wealth. The combination of premium finance and the life settlement market have truly revolutionized how seniors and their advisors can plan for their retirement. Now life insurance is one of the most powerful wealth creation tools available to seniors and investors.

In part 2 of our series on premium finance we explain the types of premium finance programs in more detail.


About the author:

David Mickelson, ChFC, AEP is an expert in wealth strategies for seniors. He has helped hundreds of seniors with life insurance, life settlements, and all aspects of estate planning.





 

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Premium Financing

Premium finance programs can dramatically reduce the out-of-pocket costs of buying life insurance. Learn about the different options might be available to you.



Links

Learn how seniors can use life insurance to generate income and wealth.

Avoid costly mistakes. Learn about life insurance fraud and life settlements.