High-net-worth individuals often employ premium financing as a strategy to fund their life policy premiums.
Here’s how it works: the insured party borrows the sum needed to cover the premiums on their life policy. Over time, the policy’s surplus cash value swells to the point where the owner can use it to pay off the premium loan.
Insurance companies welcome this strategy and anyone with a net worth of at least $2 million can potentially benefit. Wealthy individuals who need life insurance are drawn to premium financing because it preserves their own assets, which can then be used for investment, rather than paying premiums.
Premium financing works particularly well for people who need large amounts of life insurance. This might be motivated by estate planning needs, business requirement, a foreseen need to assure substantial amounts of cash are available at death, and a host of other reasons. Maintaining one’s own assets for business or investment purposes, while using the loan to finance the insurance premiums, is a particularly strong draw for wealthy customers.
The simplicity of the approach pleases both insurers and customers. The latter can usually get a return on invested assets that exceeds the cost of the loan. Lenders enjoy the safety of a secured loan. There’s no reason for the insurance companies to object: they secure major premiums and their agents benefit, too. Indeed, many insurers offer products specifically designed to facilitate the use of premium financing to the benefit of all parties.
Life Insurance and Wealthy Clients
For more information, please read:
The Benefits Of Premium Financing For Life Insurance | Forbes