Client Profile

  • High net worth ($5 million or more for an individual)
  • Life insurance need
  • Favorable insurability
  • Sophisticated investor with adequate liquidity available for collateral
  • Minimum annual premium of $100K

Overview

  • A cost effective method utilized by the affluent marketplace to pay for a life insurance need for a specific period of time. One has the ability to fund current and future life insurance premiums without hindering cash flow, financial position, or asset growth.
  • A needed life insurance policy is obtained via borrowing premiums through a collateralized loan from a reputable lender. The policy cash value is pledged as the primary source of collateral on the loan. The client is then responsible for posting additional collateral for the remaining gap between the premium and the cash surrender value on an annual basis. Acceptable forms of collateral include cash, pledged securities, life insurance cash value of currently held policies, and/or a letter of credit. Should the insured(s)’ demise occur prior to the loan repayment, the outstanding loan would be repaid from the policy proceeds.
  • Depending on the lender’s requirements and the client’s qualifications, the interest on the loan can either be paid out-of-pocket annually by the client or accrued in the loan until the time the loan is repaid. Both fixed and variable rate options are available.

Areas of Planning where Premium Financing is Typically Used:

Estate Planning

  • As part of an estate plan, a client can obtain a large amount of life insurance for the purpose of estate tax liquidity. Traditionally purchased in a trust, this offers gift tax protection because the client does not have to gift the premiums. If the interest is paid out-of-pocket, then the gift tax exclusion and lifetime exemptions can be used to offset the taxes due on the annual loan interest gifts.

What is the basic process?

  • Speak with a Greco Planning Group Inc. partner about your client to determine if premium financing would be a good option
  • Greco Planning Group Inc. will provide you with a premium financing proposal to review with your client -these are typically designed as short pay max funded policies
  • Gather financials and medical records to begin the financial/medical underwriting processes. Typically medical underwriting is first obtained on an informal basis from a handful of carriers in order to determine which offers the best option for your client. Once the carrier has been chosen, a formal life application is then submitted and the final illustration is simultaneously submitted to the lender.
  • Loan options are presented and typically a 5-10 year commitment is offered by the lender
  • Once approved by the carrier and lender, collateral is posted, any required interest payments are made, and the policy premium is funded
  • Simple annual reviews with the lender are required
  • Accumulate significant cash in the policy quickly
  • There are several options for satisfaction of the bank loan:
    • The loan can be paid out-of-pocket at any time, with most lenders waiving any prepayment penalties
    • A loan can be taken from the life policy to pay off the bank loan at a time when the policy can efficiently handle the withdrawal
    • Any combination of the above two scenarios can be incorporated
    • The policy owner is left with a fully paid-up policy that is cash rich This is a brief description of the potential benefits of premium financing. The process is complex and we recommend review of a full proposal and discussion with a partner who can walk you through each step.
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Securities, investment advisory and financial planning services offered through qualified registered representatives of MML Investors Services, LLC. Member SIPC. Greco Planning Group is not a subsidiary or affiliate of MML Investors Services, LLC, or its affiliated companies. Property & Casualty insurance is offered through a variety of quality insurance companies that are not affiliated with MML Investors Services, LLC. Auto and home insurance is offered by unaffiliated insurers. Some Health insurance products offered by unaffiliated insurers.

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