Life Insurance Premium Finance is typically used by individuals, trusts or companies for estate planning purposes, but can be used for various exchanges, deferred compensation plans, buy-sell agreements, key person life insurance and the like.
In effect, the owner of the policy borrows the premium from a third party and typically pays interest only on the borrowed amount.
The application for this lending process takes place after the insured has been underwritten for Life Insurance.
The loan is collateralized by the insurance policy and usually the lender needs some other secondary assets to secure the loan and the loan is guaranteed by the borrower.
Many types of owned assets can be used but generally real estate is not typically available for these type loans.
The rate charged by each potential lender varies and most likely they’ll charge some sort of annual floating adjustable rate as opposed to a long term fixed rate.
Basically, the loan typically can be repaid in a lump sum, in periodic installments or even at death of the insured.
Usually the most appropriate candidates for this type of “leveraged” insurance purchase strategy are over 50 years of age, have substantial personal net worth, and have a need for substantial life insurance involving substantial minimum annual insurance premiums.
Life Insurance Premium Finance has some favorable gift tax implications.
All life insurance policies are state specific and not all insurance companies offer life insurance policies to residents of all states.
Generally, the premiums must be paid for the policy to remain in force.
Cost for policy issuance is a function of the age(s) of the insured, their health condition, their smoking habits, the amount of life insurance coverage, and the payment period wanted.
All Life insurance policies have a named owner, a named insured and named beneficiaries designations. These three different designations can be the same person, but in many situations they are not necessarily set up with the same designations. Which is the most appropriate designations to use depends on different variables and situations.
Someone or a company or a organization can be the owner of these life insurance policies on someone else's life only when he/she or a company/organization has an "insurable interest".
Most Life Insurance policies are issued only after a medical questionnaire and in some cases only after medical tests.
The death benefit payable to a beneficiary upon the death of the insured is dependent on the claims paying ability of the issuing life insurance company.
The death benefit payable to a beneficiary is income tax free, and in some cases estate tax free, which is dependent on a number of factors.
