THE PRIMARY OBJECTION: Paying the Premium
It is universally agreed that Life Insurance when structured correctly is the most effective way to pass wealth on to your heirs. The leverage inside the policy growing tax deferred and passing tax- free is unmatched in any other investment. But, in order to supercharge these policies to meet both needs, they must be heavily funded. This level of funding can be daunting and deplete your available cash reserves.
THE SOLUTION: Premium Financed Life Insurance.
Premium financing is a technique that utilizes a loan from an independent lender to fund the premiums on a life insurance policy. Business owners and ultra wealthy individuals who need protection, but don’t want to tie up significant sums of available cash in a life policy use this technique.
A properly structured premium financed life insurance policy is designed to significantly reduce the amount of out-of-pocket capital needed to purchase life insurance. You contribute a small sum and the lender multiplies it in the form of a loan. Here is where the arbitrage lies. You borrow money at a fixed rate from an independent lender and by utilizing an indexed universal life policy to obtain a crediting rate on funds deposited greater than your borrowing rate. This spread assists in building internal cash value such that the policy is able to repay it’s own loan and you are able to take advantage of the internal tax deferred build up.
