No matter your client’s income bracket, careful planning is central to achieving financial success. Because your client’s assets are pulled in many different directions, it’s vital that you offer compliant alternative solutions that allow them to leverage current assets to gain more opportunities for growth, fund business succession plans and supplement future income.
When it comes to financial planning, life insurance is one of the most important and flexible solutions you can offer. But few clients are prepared to liquidate performing assets (or underperforming assets at a loss) to pay the premiums necessary for a higher death benefit. That’s where life insurance premium financing comes in. As its name suggests, this is an estate and wealth planning strategy that uses leverage to pay for the cost of life insurance premiums, allowing clients to avoid liquidating assets.
As with all wealth strategies, however, the appropriateness of this strategy must be judged on a case-by-case basis. How you answer these questions can help you decide if life insurance premium financing makes sense for your clients.
What are your client’s planning needs?
Premium financing is designed to help high-net-worth clients who need a high death benefit life insurance policy. The policy itself may be used to fund key-person or buy-sell agreements, or it may be used to cover final expenses and gaps in retirement income needs.
Will they have an adequate exit strategy?
An exit strategy is critical for premium finance planning. Their exit strategy needs to show how your client plans to exit the financing and pay back the loan, whether that’s through cash value appreciation within the policy, liquidation of other assets at a later date, a liquidity event or some other solution.
Does your client have stable collateral?
While the policy cash values can help secure the premium financing, additional collateral may be required. To avoid having to pledge additional collateral later on, you want to make sure that your clients focus on collateral with a stable value that isn’t subject to market volatility. Some forms of collateral, such as a DDA account through GFD, can result in interest savings.
How much does your client earn annually?
Generally speaking, life insurance premium financing is best suited for those making at least $250,000 per year, with investable assets in the $1 million to $5 million range.
For more information on this strategy and Global Financial Distributors’ Leveraged Planning® Solutions, speak with a Financial Services Manager today.
