{"id":189,"date":"2017-11-28T05:22:46","date_gmt":"2017-11-28T05:22:46","guid":{"rendered":"https:\/\/executivews.com\/?p=189"},"modified":"2017-12-09T23:26:59","modified_gmt":"2017-12-09T23:26:59","slug":"premium-finance","status":"publish","type":"post","link":"https:\/\/executivews.com\/life-insurance\/premium-finance\/","title":{"rendered":"Premium Financing – Leverage Your Policy"},"content":{"rendered":"

Premium Financing Life Insurance<\/h1>\n

\"usMore likely than not, every person over the age of 18 has used some type of leverage to purchase an asset.\u00a0 Almost everyone uses the power of leverage when they purchase a home.\u00a0 What is the leverage in this case?\u00a0 It\u2019s the mortgage.\u00a0 Instead of paying the total amount out of pocket to purchase a home, or even a rental property, we often put down 10 to 20% of the purchase price, and a lender pays the remaining amount.\u00a0 Even if the buyer could pay the full purchase price, it is not always advantageous.\u00a0 By paying the full purchase price, the buyer has increased his or her underlying risk of loss\u2014if something occurs on the property\u2014and the buyer has also devoted a larger amount of assets to acquire one property.\u00a0 Therefore the use of leverage is very common for real estate investors.\u00a0 Why pay the purchase price of $100k for one property when the buyer can purchase five properties with $20k down for each.\u00a0 The buyer has now used the power of leverage to minimize the loss for each and has increased growth opportunities by purchasing five instead of one property.\u00a0 What most people are unaware of is we can use leverage in the exact same manner when using overfunded cash value insurance.\u00a0 This strategy is called premium financing.<\/p>\n

Standard Premium Finance<\/h2>\n

\"primeWith premium financing, a lender pays roughly 75% of the premiums for the first ten years of the policy, and the insured pays 25%.\u00a0 Why is this such a powerful planning tool? It is because we now have 3\/1 leverage on funding the policy for capital growth.\u00a0 The following is a simple example of the power of leverage.\u00a0 A policy is structured so the buyer pays $1 a year for the first five years and then is done paying premiums.\u00a0 During the first five years, the lender is matching the $1 and then will pay $2 a year in years six though ten.\u00a0 After year ten, all premiums cease.\u00a0 If the buyer was personally funding the policy, she would have paid $5 over the five years, but with premium finance the total premium paid is $20 because the lender is paying the additional $15.\u00a0 At year 15, the lender is paid back using the cash value of the policy, and owner walks away with her policy to use the capital as she sees fit.\u00a0\u00a0\u00a0 The only asset used as collateral for the loan is the policy itself.<\/p>\n

So, what\u2019s the catch?\u00a0 There are requirements to be eligible for premium finance.\u00a0 The first is that the buyer must be between the ages of 18 and 65.\u00a0 There are also income requirements.\u00a0 With most companies, the buyer (insured) needs to be earning around $150k per year. The minimum death benefit amount is typically $1,500,000, and the insured needs to have a health rating of standard or better. Finally, access to the cash value is restricted until the lender is paid back, which typically occurs in year 15.<\/p>\n

Whole Life Or Indexed Universal Life Policy<\/h2>\n

\"topLet\u2019s take a look at some numbers, strictly from a tax-free retirement income standpoint, for a client of mine. She is a successful 36-year-old non-smoker wanting to pay an annual premium of $30k for five years.\u00a0 Using the premium financing, the lender will also be paying $31,088 for the first five years.\u00a0 In years six through ten, the lender will pay $59,588.\u00a0 After year ten, the premiums cease, and the lender is paid back from the policy\u2019s cash value in year 15.\u00a0 Starting at age 65, the policy is projected to provide $192,000 annually as supplemental retirement income to age 90.\u00a0 The total projected supplemental retirement income is a staggering $4,992,000.\u00a0 Even stress testing the projected supplemental income to the returns during the Great Depression, the supplemental income is still projected to be $131,000.\u00a0 If my client was to pay the $30k for five years without the premium financing, the projected supplemental retirement income would be $82,000, which is still great but $110,000 less per year without the premium financing.<\/p>\n

Premium financing isn\u2019t necessarily for everyone, but it does provide the opportunity to leverage your policy funding while freeing up capital to use for investments or other purposes. There is never a one-size-fits-all, but if you are looking to create an overfunded cash value policy, looking at premium financing is time well spent.<\/p>\n<\/div><\/section>\n","protected":false},"excerpt":{"rendered":"","protected":false},"author":1,"featured_media":175,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[15],"tags":[],"_links":{"self":[{"href":"https:\/\/executivews.com\/wp-json\/wp\/v2\/posts\/189"}],"collection":[{"href":"https:\/\/executivews.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/executivews.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/executivews.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/executivews.com\/wp-json\/wp\/v2\/comments?post=189"}],"version-history":[{"count":5,"href":"https:\/\/executivews.com\/wp-json\/wp\/v2\/posts\/189\/revisions"}],"predecessor-version":[{"id":529,"href":"https:\/\/executivews.com\/wp-json\/wp\/v2\/posts\/189\/revisions\/529"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/executivews.com\/wp-json\/wp\/v2\/media\/175"}],"wp:attachment":[{"href":"https:\/\/executivews.com\/wp-json\/wp\/v2\/media?parent=189"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/executivews.com\/wp-json\/wp\/v2\/categories?post=189"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/executivews.com\/wp-json\/wp\/v2\/tags?post=189"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}