life insurance premium financing

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Life Insurance Premium Finance

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Capital Crest’s partnerships with lenders and carriers propel its life insurance premium finance platforms to among the top in the industry. Capital Crest Financial Group offers its clients and advisory partners years of xpertise and experience coupled into two areas of specialization: (1) individual financing, including (i) accumulation and (ii) estate planning; and (2) business life insurance. See more information below to determine if premium finance is the right fit for your or your clients.

“Premium Finance may help clients that need Large amounts of life insurance
but don’t want to immediately liquidate assets to make large premium payments”

Premium financing may be an effective strategy for affluent individuals to meet their wealth transfer objectives. Many affluent individuals have a need for life insurance but have illiquid estates, or would choose alternative funding solutions.

Premium financing can represent a current source of capital for life insurance premiums. Premium financing can also be a source for premium dollars until the client has an identified liquidity event (e.g., sale of business) in the future. Wealthy individuals can be very good at developing a high return on their investments. For these individuals, borrowing may make sense if they expect their assets/investments to continue generating positive arbitrage over the loan interest rate.

  • Net-worth (or business valuation) of $5MM +
  • A personal need for life insurance for estate or legacy planning
  • A business need for life insurance for a buy-sell transaction or key-man coverage
  • Seeks to earn a high return on invested assets
  • Seeks to minimize gift tax exposure
  • Comfortable utilizing leverage
  • Eliminates the need for large up-front premium payments
  • Maintain current liquidity and existing investment strategies
  • Multiple insurance policies can be attached to a single finance contract, allowing for a single payment plan to cover all all personal policies and/or business insurance needs
  • Borrowed premiums are not subject to gift or income taxes – the measure of the gift is based on interest and not the premium payment
  • Education
  • Interfacing between carrier and lender
  • Assisting in structure and analysis
  • Full service case design and modeling
  • Stress test scenarios and forecasting
  • Loan refinancing and renewals
  • Loan restructuring
  • In-force financing
  • Policy restructuring
  • Policy management
  • Policy review and audit
  • Annual client summary
  • Client established an Irrevocable Life Insurance Trust (ILIT) after making inquiries
  • Client identifies asset to be used as collateral and pledges to secure transaction
  • Lender advances funds to ILIT as needed to pay annual premiums.
  • The trustee pledges the insurance policy as primary collateral for the loan
  • Trustee repays principal and interest, if applicable, to lender from policy proceeds at the death of the insured (or before) through private repayment
  • Net proceeds are distributed per the terms of the ILIT
  • Typically, the interest rate on the loan is tied to an index with a fixed spread. The interest may increase during the life of the loan, which could increase out of pocket expense and the risk of default
  • A failure to pay loan interest and/or post required collateral required my lender may result in default of the loan
  • A decrease in the value of collateralized assets (such as real estate or securities) may require the insured or their estate to post additional collateral
  • Virtually all premium financing loans have terms less than the life of the policy. The lender may have the right to call the loan at the end of the term. In the event refinancing is unavailable, the client may be required to identify an alternate loan repayment
  • Cash
  • Letter of Credit
  • Marketable Securities

Case Study

Mike is a family man by night and an executive of a large company by day. Like many in Mike’s situation, he has an ambition to protect his legacy and is troubled about how to preserve his family’s liquidity against potential estate tax exposure and what would happen in the event of an untimely passing. Mike has already used his lifetime gift tax exemption and is seeking life insurance. Working in partnership with his family’s attorney and his investment, banking, and insurance advisors, they have come up with a long-term liquidity solution by creating an Irrevocable Life Insurance Trust (ILIT) to hold three life insurance policies, one for himself, one for his wife, and a survivorship (second to die) policy on he and his wife. Since Mike has used all of gifting exemption, if the ILIT were to self-fund or if Mike was to gift the annual premiums on the policies, every contribution would be subject to gift taxes.

To reduce future gift tax consequences, Mike’s advisory team suggests a premium finance strategy to fund the annual premiums on the life insurance policies. In this strategy, the loan will accrue interest in order to prevent any gift tax exposure on future contributions to the ILIT (clients who have yet to use their lifetime gift tax exemption are encouraged to service the interest up to their annual gift tax exemption for enhanced results) and the net insurance death benefit will not be included in Mike’s gross taxable estate. By carefully evaluating Mike’s goals and financial situation, Mike’s advisors were able to suggest a solution that can solve Mike’s legacy issues and potentially saves Mike and his family millions of dollars in future estate taxes.