Life Insurance Premium Financing
Life insurance premium financing is probably the most overlooked and under-utilized Estate Maximization financial product of them all. Because the United States tax code does not tax life insurance proceeds, it should be an important subject of financial interest for all high wealth individuals. But large life insurance policies tend to involve continuous and sizable cash outlays to cover hefty premium payments. To solve that, financing the premiums frees-up those funds, which can then be redirected towards your other shorter term and higher yielding investments.
Life insurance premium financing could be the most intelligent financial vehicle available for addressing your estate’s cash flow needs while improving your overall situation (bottom line value fattening) at the same time.
And not only is premium financing a cost efficient way to acquire an appropriate amount of life insurance and putting cash to work, it also spawns opportunities and options for flexibility towards other methods of assets and capital preservation.
Certainly, proceeds from conventional life insurance policies offer obvious benefits which typically deliver:
- Cash to pay federal and state estate and inheritance taxes, debts, administrative charges and other related outlays
- Income for family expenses
- Capital for other needs; college tuitions, mortgages, etc.
- Funding for business continuation
- The ability to supplement retirement programs
- Resources for charitable contributions
- Liquidity to deal with possible assisted living needs or other healthcare and personal attention requirements
- Other estate protection considerations
Other, less visible benefits also exist within premium financing concepts that can bring other useful and further reaching gains to you. Premium financing is a convenient way for estate owners who require large amounts of life insurance to identify various new ways of funding without impeding current cash flow or impacting (liquidating, etc.) other assets.
What Are The Added Benefits Of Life Insurance Premium Financing?
A full list of gains for estate holders to consider life insurance premium financing is dependent on how an individual’s portfolio is setup. Case-by-case specialist analysis is necessary to confirm how life insurance premium financing would improve your position.
Some general benefits of life insurance premium financing include:
- Allows the high net wealth builder to obtain the necessary coverage without liquidating other assets.
- Eliminates the requirement for large up-front payment to an insurance company.
- Multiple insurance policies can be attached to a single premium financing contract.
- Transparency provided for the individual or insured company.
- Retirement planning considerations
- Higher death benefits while making considerably lower payments
Are There Risks?
The only notable risk is interest rate volatility. Financing interest rates are usually based on the U.S. Prime Rate or LIBOR (London InterBank Offer Rate). Naturally if the prime or LIBOR rate rises, so do the premium financing charges. But that’s no different than if money was borrowed for business, real estate or investment capital purposes; certainly something high net individuals are accustomed to. The other main danger would be if implementation of a poorly designed premium financing strategy somehow occurred.
Like homes, cars or other valued assets, life insurance is personal property, and viewed similarly. However, financing the premiums empowers some golden opportunities to maximize your estate that are usually missed.
How Does Life Insurance Premium Financing Work?
The simplest description is that premium financing is an estate maximization instrument from which estate holders borrow funds from a third-party lender to pay the premiums for a permanent, high value life insurance policy. The interest payments for the loan are much lower than the policy premiums would be so current cash flow streams remain unaffected and other (usually more tangible) assets need not be liquefied to cover policy premium payments. At a future time the owner, or the heirs, exercises the option to reimburse the lender using the cash surrender value, the death benefits of the insured, or combination of both, from the policy.
Depending on how your estate is structured, the potential flexibility and benefits can far exceed what meets the eye. In addition to the obvious benefits, an appropriately valued life insurance policy provides additional opportunities regarding capital preservation, transferring assets to heirs, tax consequences, and more.
Why Estate Maximization? Because you should only have to create wealth once…
If you care about how your property is handled, you need an estate maximization plan.
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You really can keep it in your family…
P.S. The time you spend with me will be rewarded with the ideas and perspectives you’ll receive that will help enable you and your family to preserve its wealth long into the future. After all, they are your assets. You worked hard and deserve to keep them in your family!
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