There are few, if any, financial tools that don’t have some baggage and misconceptions surrounding them. We’ve all heard different strains of inaccurate information about various products—including those we know can (and do) perform in the right portfolio, with the proper planning. Premium financing is not immune to these mischaracterizations, yet it can be an ideal planning tool for high net-worth clients and business owners concerned about retirement, business succession, and estate planning.
Premium financing solves the single most frustrating issue that many high net-worth individuals and business owners run into: covering the cost of securing adequate life insurance to finance their future needs without liquidating other performing assets.
Financial resources, by their very nature, are finite. Even if insurance premiums are reasonably priced, moving assets from one investment to another can impact returns, taxes, and income. That’s where life insurance premium financing comes in handy, by ensuring your clients can leave their other investments in place while still taking advantage of life insurance benefits via the assistance of a third-party lender. It’s a simple, time-honored strategy that is critical for the right clients, provided you can move past the following three misconceptions.
3 Common Premium Financing Misconceptions
1. Interest rates make life insurance premium financing a bad deal.
You’d be hard-pressed to find a loan that doesn’t include some form of interest. Whether it’s to buy a car or mortgage a house, interest allows lenders to make money. People often don’t realize that life insurance premium financing offers borrowers more control over interest charges than other loan products.
For example, your clients choose between fixed or variable rates. Additionally, business owners may find the interest paid on premium financing to be tax-deductible. Clients can cut interest costs even further when using a demand deposit account (DDA) as collateral.
2. Life insurance premium financing only makes sense for those earning millions per year.
Generally speaking, the ideal premium financing candidate is someone whose net worth is $5 million or more. Financial planning ought to begin well before retirement.
3. Premium financing is geared toward retirees or those close to retirement.
Life insurance seems to be something that many people start to think seriously about only when they get older, within 10 or so years of retiring. But to get the most out of a premium financed policy, it’s important to secure the insurance when the client is healthy and relatively young, which also gives the cash values time to grow. This makes premium financing ideal for qualified clients in their 40s.
There are plenty more misconceptions out there, but we can help you separate the truth from fiction. Here at Global Financial Distributors, we can get your clients the coverage they need through our Leveraged Planning® program. Find out more by contacting us today.