Premium Finance

Reasons for Premium Financing

The value of life insurance for estate liquidity, protection planning, business coverage or as an alternative asset class is naturally weighed against the capital or cash flow required to support the premium payments. High net worth individuals will often forgo the purchase or acquisition of needed insurance because of age and underwriting requirements that make premiums cost prohibitive or cash flow and capital needed for other important projects or investments

The value of life insurance for estate liquidity, protection planning, business coverage or as an alternative asset class is naturally weighed against the capital or cash flow required to support the premium payments. High net worth individuals will often forgo the purchase or acquisition of needed insurance because of age and underwriting requirements that make premiums cost prohibitive or cash flow and capital needed for other important projects or investments.

Top Reasons To Finance Life Insurance Premiums

Leverage

Most self-made millionaires are comfortable leveraging their assets and have used that to create wealth. Premium finance permits clients to leverage their current assets and the policy's cash surrender value to obtain the coverage they need.

Product and Design

Product and Design

The recent period of low interest rates and sluggish economic growth has certainly made premium financing more attractive for high net worth families and individuals. Our designs combine properly structured preferred loans with non-correlated fixed insurance products.

The reward of a properly designed life policy is the spread between the loan rates and the crediting rate of the policy. A healthy spread allows for the purchase of a large policy using significantly less out-of-pocket capital than traditionally paying for the full premiums.

Overfunded Whole Life and Indexed Universal Life are currently the most popular products for financing today and for good reason. Whole Life offers the benefit of consistent dividend crediting year after year, albeit lower returns, yet on par with tax-free bond portfolios. Indexed UL is driven by market performance, but not directly invested in the market. IUL generally tracks an index (such as the S&P) and will credit the policy if there is a gain in the market while providing downside protection in the form of a floor (0%-1%) if there is a drop in the market.

Our design generally feature a minimum of paying 5-10 years of contributions (at least the interest), accruing interest if necessary, then in year 11+ using policy surrender value to pay loan interest and principal over a period of time. Policy and loan review on an annual basis is required to ensure success of the design, but a loan can be managed effectively as long as the policy growth can at least pay the loan interest year to year.

Lenders, Rates and Collateral

Lenders, Rates and Collateral

Nearly all major banks compete in the premium finance space, even if not advertised. We can work with the client's existing banking relationship or shop other lenders for the best possible rates and terms. Generally, we target jumbo loan rates based on LIBOR plus a spread from a lender.

Collateral requirements will vary by lender, financial condition of borrower and the negotiation process with the lender. In general, assets that are used for collateral:

  • Cash and money markets

  • Non-Qualified securities subject to discount (approximately 50%)

  • Unencumbered real estate subject to discounts (50-70%)

  • Depending on the lender, other assets may be acceptable such as accounts receivable or annuity surrender value for example.

Nearly all major banks compete in the premium finance space, even if not advertised. We can work with the client's existing banking relationship or shop other lenders for the best possible rates and terms. Generally, we target jumbo loan rates based on LIBOR plus a spread from a lender.

Collateral requirements will vary by lender, financial condition of borrower and the negotiation process with the lender. In general, assets that are used for collateral:

  • Cash and money markets

  • Non-Qualified securities subject to discount (approximately 50%)

  • Unencumbered real estate subject to discounts (50-70%)

  • Depending on the lender, other assets may be acceptable such as accounts receivable or annuity surrender value for example.

Qualifying Candidate Profile

  • Minimum $10 million in net worth, however $15 million is preferable

  • Maximum age of 70

  • Has undedicated liquid assets required for collateral, at least $1 million

  • Has solid financials and income for the last two years

© 2015 by Tritium Private Wealth Strategies, LLC

 

IRS CIRCULAR 230 DISCLOSURE

To ensure compliance with requirements imposed by the United States Treasury Department, you are hereby informed that any advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.   This advice may not be forwarded without our express written consent. 

This prominent disclaimer will not appear, however, if the written tax advice is in the form of, and meets the requirements of, a "covered opinion" (a term defined in the Circular 230 regulations).  Generally, a "covered opinion" issued by us will include written opinions we provide to clients who have retained Tritium Private Wealth Strategies, LLC to advise them on federal tax consequences of specific transactions, which is a practice which we do not undertake.

EndFragment

 

Please be advised that any legal opinions or discussions contained herein should not be construed as or relied upon as legal advice to the client or to his advisor. The client should work with his/her own legal counsel to determine the course of action appropriate for the client's particular situation.

 

Tritium is not engaged in the practice of law, and will provide no legal services to you.  You are further advised that no legal privilege of confidentiality exists for any information transmitted or shared with Tritium and its personnel.

FOLLOW US:

  • LinkedIn Clean Grey