By LifeSource Direct, LLC
Our goal is to help both brokers and clients build profitable relationships through exceptional client value. LifeSource Direct life insurance premium finance has the tools to make financing insurance premiums easy and expedient. Our success is based on our ability to offer flexible, personalized service to each of our customers. We are currently licensed in all States.
Life Insurance Premium Finance
The topics below will provide a review of life insurance premium finance:
- What is Premium Finance?
- How does Premium Financing work?
- Who can qualify?
- Why Premium Finance?
- What are the benefits?
- Who is the Eligibility for Premium Finance?
- What are the legal and Tax Considerations?
- What is the Sales and Client Process for Premium Financing?
Let LifeSource Direct make this easy.
What is Premium Finance?
Life Insurance Premium Finance has been around the life insurance industry for over 10 years. In simple terms, it is the borrowing of premiums to fund a life insurance policy. Premium Finance involves the lending of funds to a person or company to cover the cost of an insurance premium. Premium finance loans are often provided by an arrangement with a third party entity known as a “Premium Finance Brokerage Firm.”
How does Premium Finance Work?
To finance a premium, the individual or company requesting insurance must sign a premium finance agreement with the premium finance company. The loan arrangement may last from one year to the life of the policy. The premium finance company then pays the insurance premium and bills the individual or company, usually in monthly installments, for the cost of the loan.
Who can Qualify?
Life Insurance Premium Finance may offer high-net-worth individuals the ability to borrow the premiums to pay for an insurance policy, allowing them the use of funds they might have otherwise used to pay for the insurance.
Why Life Insurance Premium Finance?
Premium financing works well when the interest rate on the loan is less than the insured could make on the resources he would have sell to pay the premium, or when the policy’s expected return is greater than the interest rate on the loan. A person may want to enter into a premium financing agreement to acquire a lesser cost for a policy, to reduce gift tax concerns, and to preserve cash flow or liquidating assets to pay insurance premiums.
Minimums for most plans are $5 million in assets and $200,000 a year revenue. The borrower must be a bankrupt-remote individual (i.e., creditors can’t get at the assets for bankruptcy), like a LLC or an irrevocable life insurance trust. The purpose of a premium financing program is to pay as little as possible for the insurance policy versus the possibility that the loan’s interest rate will be more than the benefits of the policy.
What are the Benefits?
There are a number of benefits to financing an insurance premium. These include:
- Eliminates the requirement for a large up-front payment to an insurance company.
- Various insurance policies can be attached to a single premium finance contract, allowing for a single payment plan to cover all insurance coverage.
- Premium financing is often transparent to the individual or company insured. Brokers transmit the completed premium finance agreement to the premium finance company, and the policy holder is billed as they would be for any other typical insurance policy.
- Allows for clients to obtain needed coverage without liquidating other assets.
- Note – courtesy of Wikipedia
Who is the Eligibility for Premium Finance?
Because of it complexity, premium financing is not for everyone. If you have financially sophisticated clients with skilled tax and legal advisors, this strategy may be appropriate for them. Also, your clients must meet certain eligibility requirements. To qualify for a premium financing arrangement, clients should demonstrate the following:
- A need for life insurance.
- Have a minimum net worth of $5,000,000 ($10,000,000 preferable) or more.
- Have verifiable annual income in of $200,000 or more.
- Have liquid assets sufficient to pledge as collateral for the loan.
- Meet life insurance policy underwriting guidelines.
- Commit to at least $1,000,000 in loans to provide premium.
What are the Legal and Tax Considerations?
Premium financing has tax implication in a number of areas including estate, gift, and income taxes. Your clients must rely on their own legal and tax advisors to review and explain the legal and tax issues for their specific case.
What is the Sales and Client Process for Premium Finance?
- Discuss concept with one of our advisors to determine need and objective
- Determine best carrier and lender together through a thorough examination of options
- Underwrite life insurance and financing
- Deliver policy and closing documents
- Receive full commissions
LifeSource Direct Objectives:
We operate with three major TOP principles:
|Transparent:||Earning your trust through integrity, communication and full disclosure|
|Objective:||Searching for the best possible solution under your direction|
|Professional:||Working at the highest level of professionalism to facilitate every case|