What is Premium Financing?
Premium Financing is a modern choice for funding life insurance premiums. For wealthy individuals or their heirs who seek life insurance, Premium Financing provides full coverage with a limited cash investment. Instead of paying premiums, the insured purchases the insurance using a loan. These loans can be arranged with different options for additional collateral. Borrowing rates are dependent upon these conditions.
When Premium Financing Makes Sense
Affluent investors have used premium financing since the mid-1950s. There are a variety of business reasons for exploring Imperial premium financing. Typical clients of the program are senior citizens seeking life insurance to fund inheritance taxes for a sizeable estate. With the volatility of short term borrowing rates, premium financing only makes sense if the insured has a life expectancy of less than 20 years, or can repay the loan within that time. Between cash flow issues, existing high performing investments, timing, or opportunity costs, there are many sound financial reasons to choose premium financing to fund insurance premiums. For example:
- Assets are currently invested in a high paying fund, or an investment that has not matured;
- The client is planning to sell a business in the next few years but requires the extra protection now;
- The investor has stock options or a retirement fund that will not become available for several years;
- The investor feels that premium payments will limit future high-yield opportunities.
Additional Benefits of Premium Financing
- Improved Cash Flow
- Consolidated Insurance Payments
- Short Approval Procedures
- Fixed Rates
In addition, where allowed, investors may be able to use equity in property as collateral. In this way, the investor can leverage existing equity to create wealth. Since property appreciates at the same rate whether or not it is paid for, equity does not create wealth unless it is invested elsewhere.
