Skip to main content

INSURANCE

TOOLBOX

PREMIUM FINANCING


There are a variety of premium financing programs available to finance life insurance.  The critical component when using premium financing is to make sure the insurance product desired and the lending product are matched or combined in a way that will meet your unique needs.  Effective programs and designs offer more advantages while effectively mitigating the risk involved in financing.

 

Premium Financing Overview

In a typical premium financing plan, an individual or company borrows from a commercial or third-party lender, typically a bank, to pay the premiums on a policy owned by and payable to the trust. The trust either: (1) accrues the interest, or (2) pays the loan interest with cash flow from trust assets or with gifts from the client/insured. Sufficient collateral acceptable to the lender is posted so that the lender is fully secured at all times.

At inception, the lender agrees to a total loan for a term of years based on expected premium payments and subject to the guarantors continuing to meet financial qualifications. For example, assume a client desires to establish an ILIT and finance purchase a policy with five annual premiums of $500,000. The lender agrees to a $500,000 loan in Year 1 and total additional loans of $2 million to cover the remaining four premiums.

The client guarantees the loan and posts collateral as needed. The lender pays the first premium and, on each anniversary during the loan period, provides an invoice for interest due, trues up collateral (to ensure that the lender remains fully secured) and, provided the loan isn't in default and the client as guarantor continues to meet financial qualifications, offers the borrower the option to finance all or a portion of the next premium.

As part of the annual review, the client certifies to the lender that his financial net worth hasn't decreased, and the lender reserves the right to request a current financial statement. At the end of the 5-year period, the borrower will be given the opportunity to repay the loan or re-apply. The loan will be re-underwritten, and if approved, the borrower may re-up for another 5-year period, but subject to the lender's terms in effect at that time and based on the new underwriting.

The loan interest rate typically varies annually and is based on the current 3 month or 12 month LIBOR at the time of implementation, plus a spread ranging from approximately 100 to 350 basis points (bps). The spread will depend on the lender, the size of the loan and the creditworthiness of the borrower, and is guaranteed over the term of the loan.

Premium Financing With Indexed Universal Life: Part I

 

Buying Out a Business Partner

When an entrepreneur starts a new business, planning for a buyout of a business partner years in the future is rarely a top priority- but maybe it should be.

As businesses grow and evolve, so too do ownership or shareholder groups.  The same partners or investors who took a company from startup to $20 million in revenues aren't necessarily the right people to grow the company from $20 to $50 million, or $50 to $150 million, and so on.

Layer in retirements, partnership disputes and absentee or non-strategic owners receiving generous compensation, and making changes in ownership becomes increasingly more important (and costly) as the business grows.

In this guide, we'll discuss:

  • When a Partner Buyout is a Solution

  • Valuing the Business

  • Structuring a Partner Buyout

  • Financing a Partner Buyout

  • Using an Investment Banker to Raise Capital for the Buyout

 

SCHEDULE YOUR OWN CONFIDENTIAL MEETING

TO RECEIVE YOUR COMPLEMENTARY

PREMIUM FINANCING ANALYSIS