SafeMoney

What is Premium Financing?

Premium financing is an arrangement with a third-party lender to pay life insurance premiums.

This unique funding method is a leveraging technique that allows individuals to purchase significant amounts of life insurance for estate tax liquidity, business succession, or financial planning needs, without the need to liquidate assets that are currently positioned to maximize the client’s investment returns.

The principal of using someone else's money to finance real estate transactions or one’s business is a commonly used idea that capitalizes on the time-value of money.

Why not use the same concept to finance life insurance policies?

History

For over 100 years, financing life insurance purchases has been used by the affluent, who know how to make their money work for them. Since only the ultra-wealthy used life insurance premium financing in the past, conventional insurance buyers had no knowledge of its use.

In the past, only sophisticated estate planners and a handful of estate/tax attorneys introduced this concept to their wealthiest clients. These individuals needed large amounts of life insurance, but did not want to or could not use liquid assets to pay for it. Premium financing made it possible for these individuals to purchase the life insurance they needed to complete their estate planning, while retaining use of their money in the meanwhile.

However, Warren Buffet used several large financial institutions to open the door to major changes in the premium financial industry (See "Late in Life, Finding a Bonanza in Life Insurance;" appeared on the front page of the NY Times on December 17, 2006).

Mr. Buffet directed the investment community to find and use new ways of leveraging their investments to purchase life insurance.

Today, there are numerous banks and financial institutions willing to finance life insurance. This, along with dozens of major life insurance companies accepting premium financing, has allowed such programs to flourish. As a result, it is not only the ultra-wealthy, but the mainstream public that now has access to this unique financing method.

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