Premium Finance Tips

“How To” Tips for Premium Finance

Unless Congress and the President act by the end of this year to change the estate tax, then effective January 1, 2011, estates over $1 million will be subject to estate taxes at a marginal rate of up to 55%.

If you take a typical upper-middle class couple with a home, a vacation home, and a modest amount of savings, it is quite possible that their heirs will be left with an estate tax bill that will require quickly selling one of the properties for whatever they can get.

Imagine the magnitude of the problem for a small business owner who has a considerable portion of his wealth tied up in the business.  The need to plan for estate taxes is urgent, and life insurance is the most cost-effective solution.

As you can imagine, the size of these estate planning cases are often very large both in terms of death benefit and annual premiums.  Your client may see the absolute necessity of making the life insurance purchase but may value an approach to paying the premiums that does not require the sale of other assets, particularly highly-appreciated or illiquid assets.  This is a situation where premium financing can be an attractive solution.

With premium financing, a commercial bank lends the insured or the insured’s trust all or a portion of the premiums due in exchange for a personal guarantee collateralized by the policy and possibly some additional assets.  Eventually, the loan is paid off by the life insurance cash values or its death benefit.

With interest rates at historic lows, some clients find that premium financing provides them with leverage.  They can potentially earn a higher rate of return on the collateral than is accruing on the loan.

Premium financing involves certain risks, since, for example, the loan’s interest rate and the growth of the insurance policy’s cash value can often fluctuate.  Additionally, in any sales scenario that requires the loan offer to be made in order for you to close the sale, you want to make sure you are working with an organization that can reliably get you a solid loan offer from a bank and get a loan from a solid organization too, like check into cash winchester loan center.

So, let us help you with high net worth assests.  They have an estate tax problem, and they just need the best way to fund it.  Premium financing can often provide the solution, and no one is better able to assist you with this than LifeSource Direct.

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