Financing the cost of life insurance premiums is a strategy used by many high-net-worth individuals and business owners who require insurance coverage to pay out millions or tens of millions in death benefits. These policies play a critical role in protecting the policy owner’s beneficiaries, whether the business or the policy owner’s heirs.
These whole-life policies come with a hefty price tag, with the cost of premiums as high as $100,000 or more per year. Financing the cost of premiums allows the owner to deploy assets where they continue to perform, whether building or maintaining business operations or in investments where higher returns are realized, simultaneously protecting heirs from a forced sale of valuable assets to cover the cost of death taxes and other tax liabilities.
Advanced Estate Planning: Financing Life Insurance Premiums
Financing high-value life insurance policies can be remarkably tax efficient. In advanced estate plans, these policies are typically held by a trust, which borrows to pay annual premiums, thereby avoiding gift taxes. Financing the cost of premiums offers an array of benefits to the policy beneficiaries, including:
- Avoid the need to sell valuable assets intended to be passed to heirs to cover the cost taxes at the death of the policy owner.
- Allows for greater liquidity, and maximum insurance coverage, without impacting cash flow or lifestyle.
- Allows business owners to avoid liquidating assets to cover the cost of premiums.
- Allows key person protection for critical employees, partners, or owners.
Choosing the Right Premium Financing Program
Selecting the ideal premium financing program will require guidance from an insurance professional who is very familiar with the various options on the market and a review and evaluation of all facets of the loan, including but not limited to:
- Monthly or yearly costs
- Interest rate
- Loan payoff terms and exit strategy
- Length of the loan term
To learn more about premium financing, speak with our team of professionals about the current options on the market.