We call this method premium financing.
Although most people cannot dispute the benefits of life insurance to protect their legacy, no one likes paying for it. Over
the years, you have worked extremely hard to build what you have today. Creating your nest egg has been a product of hard
work, timing, and utilizing your knowledge of your financial options. Until now, you may have been unaware of a little known
options that can maximize the inheritance left to your family. Aside from life insurance's basic function of protecting
your loved ones financially after your death, it can also be a valuable tool in estate planning, charitable giving and retirement
funding.
The major issue with buying life insurance is
paying the premium. Using your assets to pay premium diverts funds from potentially profitable investments. As a result, many
people have not adequately protected their financial legacies. Most would buy life insurance if the could make the purchase
with favorable financial terms, but traditional funding methods don't cut it.
Premium financing enables people with high net worth to purchase life insurance without liquidating other investments
or otherwise changing their normal cash flow. Through this innovative financial arrangement, qualified clients borrow the
funds to pay life insurance premiums. They protect their net worth and pass their financial legacy on to future generations,
and they do it without altering their other financial strategies.
At
its most basic level, premium financing means borrowing money to pay life insurance premiums. To do this, it means taking
on debt, something that many of us are reluctant to do. There are alternative methods of paying life insurance premiums without
impacting your immediate cash flow.
Benefits of Premium
Financing
If premium financing is right
for you, it may provide you with several benefits:
- Potential lower out-of-pocket
expenses a compared with traditional premium funding.
- Gift tax savings when the policy
is owned by your irrevocable life insurance trust.
- Lower impact on your existing
personal assets because you are not required to liquidate assets in order to fund the life insurance premiums.
- Greater leverage of
existing assets by continuing to be able to employ them in your existing financial plan.
·
Possible interest tax-deduction of ordinary business expenses*
Disadvantages of Premium Financing
At the same time you need to be aware of potential disadvantages of premium financing:
- There is a risk that more assets than initially anticipated will need to be pledged in order to
continue the arrangement.
- If the premium finance loan is called
and the policy values are insufficient to pay the loan off, the outside collateral may be called, creating significant gift
tax issues.
