Our work in premium finance runs deep. Many can produce carrier proposals showing the concept, however understanding and presenting the analytics is crucial. Each case is unique and customizable. Each case must have certain elements present. Our multiple carrier and lender relationships produce top tier choices, while our advanced design team thoroughly reviews these choices and produces a simplified presentation to take to your client. We communicate at every step with all parties: you, your client and his advisors, the chosen carrier, and the lender. We attend to details, separating myths from facts, and work with you from preliminary design phase to presentation to full implementation and closure.
A HIGHLY-COORDINATED TAILOR-MADE APPROACH
Clear communication, transparency and a thorough understanding of expectations and design elements are key to a successful premium financed life policy strategy. The strategy is powerful when the sum of all the parts is well coordinated, with two major areas of focus as top priorities:
- Premium-financed life insurance policies are centered on permanent policies, today most often with cash values tied to market indexes. Designs typically utilize a maximized short payment structure, and show projected returns within the policy, as well as anticipated worst-case cash value accumulation scenarios. Our presentations cover this spectrum. We stay current within our constantly-changing marketplace for “best fit” policy types and design features. Critical to our analysis is a thorough discussion of the exit strategy or combination of strategies most likely to be used to eventually roll out of the financed loan. All variables are considered, including:
- Carrier and product choices available;
- Fixed and/or indexed account choices;
- Policy projected and floor interest rates;
- Special policy benefits, if any;
- Demographics of the insured(s) – age, gender, health status, tobacco use;
- Desired net death benefit need and longevity of this need;
- Payment structure;
- Policy cash access features, including cash surrender and loan options; and,
- Carrier financial credibility.
- Often it is the lending that stalls or halts a premium financing implementation, so we make it our business to know the banks and third-party lenders who are actively working in this space. Each client is highly-individualized, and lenders not only want to know, but require that they know your client. After all, they intend to lend perhaps millions of dollars to finance needed life insurance. Knowing upfront answers to several questions and obtaining necessary documentation is key to a smooth approval process:
- What is the purpose of the life insurance and how was the need determined?
- Who are the participants to the deal (i.e. insured(s); borrower / guarantor; trust / owner; beneficiary)?
- What specific collateral will be pledged against the loan?
- Does the client have any key lending relationships currently?
- What is your client(s)’ risk tolerance?
- What contingencies exist or can be put in place in the event financing not available later?
- How and when can all relevant financial, tax and legal documents be obtained?
Traditionally used as an estate planning tool to high net worth clients desiring to minimize gift and estate taxes by paying interest on a loan instead of premium, premium finance is a creative and widely accepted strategy today. Business owners wanting to fully deploy capital in the way they know best – within their business – or, the high net worth individual who sees advantages to keeping his investment portfolio or real estate fully invested, generally understand the power of financing. Whether the goal is a fund for estate taxes, a business buy-out, protection on a top key person, executive benefits, or company-owned life insurance, borrowing premium could make sense. If LEVERAGE, TAX SAVINGS, RETAINING CAPITAL, or INCREASING IRR’s important, there is reason to consider premium finance.
Premium Financing For Life Insurance: The Who, What and Why, https://www.forbes.com/sites/forbesfinancecouncil/2017/07/21/premium-financing-for-life-insurance-the-who-what-and-why/2/#7c80961d3fd7, Forbes, July 21, 2017.
Life Insurance Premium Financing – A Test of Wits, Skill & Planning, First Insurance Funding, 2015.