“An investment in knowledge pays the best interest”—Benjamin Franklin
A potential strategy for high income and high net-worth individuals.
Over the years, you have worked extremely hard to build what you have today. Creating your wealth has been a product of hard work, timing and utilizing your knowledge of your financial options.
It’s likely that you already have life insurance to protect your loved ones financially should you die unexpectedly. However, some life insurance can also be a valuable tool in supplemental retirement income, business succession, buy-sell arrangements, estate and legacy planning.
As a high net-worth individual or business owner, you may not have adequate liquid capital to pay premiums of a large cash value life insurance policy. In many cases, those funds are allocated elsewhere to increase your overall assets or grow your business.
This is where life insurance premium financing may be an option to explore. Additionally, there are potential tax advantages for a business owner through premium financing, depending on the structure of the loan arrangement.
How does premium financing work? Premium financing is a financial arrangement through which qualified clients (usually those with high incomes and/or high net worth) purchase life insurance without liquidating other investments. Through this financial arrangement, qualified clients borrow the funds for the life insurance premiums from a third-party lender. Most life insurance premium financing arrangements are designed in such a way that the cash value growth in the life insurance policy can be used to exit the premium finance strategy and pay off the loan. If there is a loan balance at the client‘s death, part of the life insurance death benefit would repay the loan and any remainder could pass to the client’s beneficiaries.
This strategy may enable the client to protect their net worth and pass their financial legacy on to future generations without altering their other financial strategies. While the concept of premium financing is simple, the actual transaction can be quite complex. For this reason, it’s critical to involve your own qualified tax and legal advisors in the process. You want direction from people who understand the concept thoroughly and can assist you in determining if there is a premium financing option that fits your unique needs.