Apr
17
2008
The Facts About Premium Financing of Life Insurance
Author: Byron UdellI’m still against premium financing, but I thought I’d share some facts put out through a press release by the BCAJ Southern California Insurance Center. Their release provides some good insight as to what it is and what premium financing is and what it does.
Please note: I’m still not a believer in premium financing and I warn consumers to enter these sorts of agreements at their own risk…make sure to get all the facts before entering into this sort of agreement. However, I use this blog as a tool to educate you; therefore I will present both sides of the story. Here’s what BCAJ has to say about the subject:
The Facts About Premium Financing of Life Insurance
Premium financing has become a very important topic in the insurance industry. Premium financing of life insurance is a way for high-net-worth individuals, over the age of 55, to obtain the life insurance coverage they need without having to divest high yielding assets.
Life insurance premium financing is a tool, offered from a premium finance company, that an individual with substantial assets uses to cover the upfront costs and premium payments on a life insurance policy. Individuals often choose this course if they require a large amount of life insurance and do not want to pay the out-of-pocket costs. Premium financing makes the most sense when an individual wishes not to liquidate high yielding assets to cover the costs of a life insurance plan.
Most premium financing policies require at least $2.0 million in net worth and $100,000 a year in net income. The person insured under the life insurance policy has the option after 24 months to pay off the loan and maintain the insurance policy or they can retire the policy in a life insurance settlement.
July 14th, 2010 at 3:33 pm
I agree with you that in most cases premium financing is not the right approach to procuring life insurance. With that said there are many advantages for the right individual. You mentioned a net worth of $2m to be eligible. I would argue a minimum net worth of $10m before it even becomes a consideration. Not only does it prevent liquidation of existing assets, but can be extremely beneficial when gifting and lifetime exemptions are a concern. Thanks for the post.