Premium Financing
New-issue design, ongoing oversight, and four-year unwinds. Same death benefit, lower carrying cost.
Overview
An arbitrage between policy IRR and after-tax cost of capital.
Properly structured premium financing borrows against a secured pledge to fund a large life-insurance contract — the carry on the loan paid for by the policy's internal rate of return, the difference compounding inside the contract for the family's benefit.
It is also one of the planning structures most likely to drift out of arbitrage as interest rates and crediting rates move. A 2016 design that worked beautifully at origination is often, by 2026, costing the family meaningfully more than the original underwriting assumed.
The Program
Everyone loves life insurance. Nobody loves the premiums.
It is said that everyone loves life insurance, but nobody loves the premiums. But what if we could limit your out-of-pocket cost without affecting your current cash flow or other invested assets? Premium Financing does precisely that.
A lender loans money to you at a factor tied to your income and net worth, and holds the policy as collateral. Additional cash can be loaned out at a later time on a tax-free basis to be utilized as additional income.
For this to work, the policy must be expertly designed so that when the loan is repaid, the policy stays in force without additional contributions.
With conservative design, the accumulated cash is generally enough to repay the loan and keep the policy in force until 100. The owner requests a withdrawal to repay the loan, the bank releases the collateral, and you own the policy free and clear.
Why this works
An arbitrage that works in your favor.
Loan rates on premium financing arrangements are tied to base indexes like SOFR, CMT, and Prime — far less expensive than traditional financing rates for other loans. The difference between the interest on the loan and the crediting rate on the indexed universal life policy creates an arbitrage that works in your favor. Until the policy has accumulated enough cash to repay the loan, any remaining balance is satisfied by the death proceeds.
When this comes up
Three situations we see most often.
A client with $25M+ of liquid net worth seeking permanent insurance large enough that paying premiums out of pocket isn't the right move.
An existing financed policy where the loan carry has grown faster than projected, or the death benefit has been quietly eroded by COI increases.
A multi-year wind-down that preserves death benefit while removing the financing exposure — typically over 3–5 years to manage gift-tax and basis events.
How we partner with you
A four-step engagement, sized to the case.
We pull illustrations from every carrier on file and reconcile against the lender's amortization schedule.
Crediting-rate scenarios, AFR scenarios, and what happens if the pledge has to be reset.
Hold, restructure, refinance, or unwind — in writing, with the reasoning.
We negotiate with both sides so the advisor of record doesn't have to be on every call.
Have a client who may benefit from advanced planning?
Whether you are working with a business owner, high-net-worth family, estate planning client, or existing policyholder, TES can help determine whether a tax-efficient strategy may add value.
We design solutions.
We empower them.
We focus on outcomes.