Premium Financing can be a very useful tool for high net worth clients who have an estate tax issue, want to leave a legacy, or are concerned about tax rates rising over time. Most high net worth clients like the idea of insurance but do not want to pay the pricey premiums necessary to buy the permanent Death Benefit needed. Financing allows high net worth clients to have a bank pay the premiums for them while they can pay interest or a small percentage of the loan amount out of pocket.
For example, most banks and carriers are comfortable (as our we) with a 5x leverage of the interest payment. So if a client is paying $100k a year, then everytime the client pays $100K the bank puts $500K into their policy, typically for 10 years. $500K from the bank will purchase roughly a $6.5M Death Benefit for a 50 year old if we pay it up in 10 years. Our goal is to get the bank out of the picture as quickly as possible, typically we have enough cash in the policy to pay the loan off in the 13th year and the policy is free and clear to the client. At that point, the client has access to a tax free bucket of money that they can draw from annually (we'd probably project about $110K a year tax free from age 65 until the client passes), to fund other projects at a guaranteed interest rate or they do not have to borrow from the money and can allow the Death Benefit to grow over time. Before the bank loan is paid off that portion of the Death Benefit is assigned to the bank. The Death Benefit will increase every year that we fund the policy so lets assume in year 5 that the Death Benefit has grown to $9M, we have borrowed $2.5M in premiums, that amount would be paid back to the bank and the other $6.5M would be paid to the clients beneficiaries.
If you'd like to see an example of this we can put together a plan and discuss via zoom.