One of the goals of insurance agents and financial advisors is to help clients understand the roles played by various financial instruments in their portfolios. Because financial products can be so complex, many clients don't realize how important sophisticated planning is.
Life insurance is a product that offers us a perfect example of the potential complexity of a financial instrument along with the vast potential it has to help clients meet their postretirement and business planning needs.
Everyone knows life insurance can help pay for final expenses. Most people also expect it to provide an income replacement for their family in the event of their death. But few of your clients will understand the many benefits that life insurance can create within their lifetime.
Premium Financing to Secure a Lifetime of Benefits
When purchased by high-net-worth individuals and companies, a properly designed and implemented life insurance policy is a tool that facilitates business succession, estate planning and retirement goals. Yet, when presented with the premium payments for adequate coverage, many clients find it challenging to free up the necessary capital—especially when it means they need to liquidate other assets. This brings us to the first benefit of premium financing.
Benefit 1: Better control over asset liquidation
Premium financing allows your clients to leverage their other assets and the future values of a life insurance policy against a loan that pays the cost of the high-death-benefit life insurance premium. By using a third party to pay the premium, your clients maximize the potential returns of their invested capital, avoid taking losses through bad timing and minimize up-front expenses.
Benefit 2: Interest rate flexibility
Premium financing loans can often have fixed or variable interest rates, and may be based on various indices. Interest rates can be further reduced with a demand deposit account (DDA) used as collateral.
Benefit 3: Gain potential tax advantages
Several tax benefits stem from life insurance premium financing, one of which is related to gift taxes. Gift taxes are often avoidable when an irrevocable trust owns a premium financed policy. Business owners may also find the interest tax-deductible.
For more information on life insurance premium financing and whether your client is a good candidate, a GFD Financial Services Manager will be happy to provide further details.