LIMRA surveys show, many Americans overestimate how much it costs to buy life insurance coverage, leaving them pleasantly surprised when they do. But for those looking at life insurance with a higher death benefit, the premiums can still become an issue when they need to liquidate other assets to pay for them.
Yet, with the flexibility of life insurance and its potentially tax-advantaged death benefits, generally tax-deferred cash value accumulation, possibility for tax-free loans, and accelerated benefits for critical illness or long-term care costs (using applicable riders), it's a vital tool for those who want to hedge against potential losses and create a supplemental future income plan.
One way to get clients the high-dollar policies they need without forcing them to liquidate other assets is by offering your clients life insurance premium financing, an arrangement that allows high net worth individuals to borrow money from a lender in order to pay for the proceeds of a high-value life insurance policy.
Need a better idea of how to narrow your prospect list down to the right premium financing clients? Try focusing on their needs, their age and their assets.
- Needs: Premium financing is ideal for individuals who are concerned about securing business succession plans (including funding buy-sell and key-person agreements), legacy planning and retirement income with a high death benefit life insurance policy. Premium financing can also help create a hedge against losses of more aggressively invested assets and bridge unexpected gaps in retirement planning. Another perk is the tax break. Placing the policy in an ILIT helps avoid estate taxes so beneficiaries get the full value of the policy's proceeds, which can accrue over time through interest.
- Age: Not an exclusive tool for seniors, premium financing is great for qualified individuals (generally between ages 45 and 75). Since the underlying tool is a life insurance policy, securing the policy at a younger age while the client is in better health not only introduces smaller premium payments but also gives more time for cash values to accrue.
- Assets: Ideally, premium finance clients will have a combined net worth of at least $5 million. Additionally, they should have the ability to use existing capital to pay the premiums but would prefer not to liquidate the assets at the time the policy is purchased.
The benefits of premium financing are numerous, which is why it's such a popular arrangement. Leveraged Planning® Solutions may be just the solution for your high net worth clients. For more on what makes Leveraged Planning unique, speak with a GFD representative.