WHY THIS WORKS:
For a number of decades, the Internal Revenue Code has recognized that a loan is not a gift. If it must be repaid, it does not count against the annual gifting exclusion or lifetime exemption and does not count as taxable income. In premium financing, a small contribution from the insured multiplied by a loan of the remainder of the premium from an independent source accomplishes the objective – funding a life policy of enough size to meet the needs of the insured without creating a gifting event or depleting the current estate of cash.
