What Is Life Insurance Premium Financing?

A leader in the financial realm, Bill Schantz serves as the CEO and owner of Mid Atlantic Financial, LLC. The first company to operate under this umbrella was Senior Settlements, LLC, which introduced life settlements to the Capital Markets. Since this, Bill Schantz has added Harper Financial and Bedrock Capital Group to the Mid Atlantic umbrella and introduced unique programs, such as life insurance premium financing programs.

High-net-worth individuals (HNWIs) who want to keep their estate and life insurance benefits separate and avoid liquidating assets to pay insurance premiums may benefit from life insurance premium financing. In this strategy, a third-party lender pays for the premiums on a life insurance policy. The borrower pays the interest on the loan and pays back the premium finance loan once the life insurance policy has generated enough extra value.

There are several benefits to premium financing, including tax benefits for the estate and the reduction of out-of-pocket expenses for a large policy. However, this does not mean the strategy is without risks. Interest rates on the loan could rise to the point that they significantly reduce the amount of savings owned by policyholders. Further, many lenders require re-qualification of borrowers when the loan is renewed.

The strategy is primarily reserved for HNWIs because their insurance policies often have millions in coverage. This means monthly premiums of several thousand dollars. For others, a policy of $150,000 would amount to roughly $40 per month, depending on the age and health of the policyholder.