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Premium Financing

How would you like to pay for life insurance at 10¢ on the dollar and leverage your return on investments against your borrowing power?

Overview

An arbitrage between policy IRR and after-tax cost of capital.

Properly structured premium financing borrows against a secured pledge to fund a life-insurance contract — the carry on the loan interest vs. the return on investment on your assets is the arbitrage potential play.

The Program

Everyone loves the concept of life insurance.
Nobody likes to make the premium payments.

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.

I.
The lender funds the premium
A lender loans money to you at a rate commensurate with your income, net worth, and creditworthiness and holds the policy as collateral. Any shortage between the loaned amount and the cash surrender value of the policy will require additional and separate collateral.
II.
The policy is expertly designed
For this to work, the policy must be expertly designed with the lowest cost of insurance and the highest cash surrender value so that when the loan is repaid, the policy stays in force without additional contributions, allowing the policy to be effective in its design and efficient in its implementation.
III.
The collateral is released
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 loan or withdrawal to repay the premium financing 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, mainly because the loan is primarily secured by the insurance policy itself. The difference between the interest on the loan and the crediting rate on the indexed universal life policy creates a potentially secondary arbitrage that works in your favor.

Related planning areas

Often used together.

Have a client who may benefit from advanced planning?

Let's review the opportunity together.

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.

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