The most notable reasons why you might choose to finance your life insurance premiums would include:
1. Estate taxes
2. Preserve cash flows
Well qualified individuals can have the opportunity to use a lender to pay their premiums on a policy owned by a trust held outside of their estate and are capable of receiving gifts that could serve as collateral and cover the annual interest expense.
Substantial wealth can be difficult to achieve. Passing that wealth to those who matter the most to you in a way that is most efficient can be equally as challenging. Do you hate the people you love but hate the IRS even more… We have a solution for you. Life insurance can provide the substantial efficiencies that you need, but obtaining and paying for permanent life insurance can require cash flows and assets that you would rather have worked somewhere else today. The impact of the cost can be substantially reduced using premium financing.
Using a bank's capital is something that we do every day to create leverage and reduce the impact on our assets, using a mortgage to buy a house or financing to buy equipment. In the same way, financing life insurance can allow you to enjoy the benefits of the coverage immediately while deferring the acquisition cost today. And doing so you can maintain the liquidity use and control of your assets as well as your current cash flows.
Premium financing is a planning strategy that can enable you to pay the premiums for the coverage you need without having to liquidate assets. It involves an arrangement through which you borrow money at a competitive interest rate from a third-party lender to pay for your life insurance policy. The policy cash value is generally used as a portion of the collateral for the loan along with an assignment of the death benefit.
By leveraging a lender’s capital rather than your own to pay annual premiums, you retain a significant amount of capital you can use to maintain or make investments or preserve your savings or cash flow needs. If the policy performs favorably compared to the loan interest rate, premium financing offers you the opportunity to potentially earn a higher level of interest from the policy than the interest you pay for the loan.
Entering into any lending arrangement should be done with temperance. While the advantages and benefits may be exciting, looking at all aspects of the transaction is vital to moving forward with confidence.
Our financing designs can create significant advantages by offering the opportunity to:
* Reduce your short-term cost or out-of-pocket expense of purchasing life insurance substantially.
* Maintain liquidity, use, and control of your assets.
* Maximize the use of your lifetime gift tax exclusion, passing substantial amounts of assets to the next generation tax-free.
* Find efficiencies and create advantages by limiting costs.
* Leverage existing life insurance cash values to collateralize the loan while still allowing cash values to grow.
Every solution that we engineer for our clients will be customized to their individual needs, but important things to understand remain the same across all of our plans;
* The fundamental need for life insurance coverage must be your first consideration not the ease of paying for it.
* Permanent life insurance, especially whole life insurance, can be seen as a rather low-risk solution. The introduction of financing adds interest rate risk to the equation and must be carefully understood as changes in the underlying interest rates can create an increased cost.
* The experience of the life insurance company can directly impact the performance of the policy itself resulting in the need for potentially larger amounts of collateral to secure the loan.
* Entering into any agreement involving financing should be done with the advice of your tax advisors and legal counsel.
Entering into any agreement involving financing should be done with the advice of your tax advisors and legal counsel.
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Securities and investment advisory services offered through registered representatives of MML Investors Services, LLC, Member SIPC. Taylor Financial is not a subsidiary or affiliate of MML Investors Services, LLC, or its affiliated companies. OSJ 4830 W. Kennedy Blvd., Suite 800 Tampa, FL 33609, (813) 286-2280.
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