Premium Financed Life Insurance
How does premium financing work?
Premium finance life insurance is an extraoridary program that can enable qualified individuals to increase the total value of their entire insurable net worth, liquid or not, by 2 to 10 percent without risk or any out of pocket expense.
Here's how it works. If you qualify for premium financing you will be able to find a lender who will pay your life insurance premiums for precisely two years. This two year time period is called the elimination period. If, during this time you die, your beneficiary or beneficiaries will receive the face amount of the policy less the the loan amount and interest (most of which can be repaid with refunded premium). If you survive the two year eliminatin period, you will have the option to sell your policy on the secondary market. Typically the amount of money realized on the secondary market is between 2 and 10 percent of the face value of the policy.
Premium Financing is for real
It probably sounds too good to be true, but the opportunity is real--for now. In fact the opportunity was recently described in an extensive write-up in the New York Times. It hasn't always been part of the life insurance industry, however, because only recently have financiers devised a way to make it work. Life insurance companies, of course, are not particularly enthused about it because their business model requires most policies to lapse after a certain amount of time. When a policy lapses, the insurance company gets to keep all of the premium that was paid in over the years (except, of course, when the policy builds a cash value).
The window of opportunity is narrow, however, because observers expect
the life insurance industry to look to adjust their policies within the
next several years to decrease investor appeal in premium financed life
insurance. They will do what is in their power to either increase the
cost of life insurance, or petition state assemblies to impose a much
longer elimination period or possibly both.
What are the eligibilty requirements?
To be eligible for Premium Financed Life Insurance one must typically:
- Have a clean health history
- Have insurable assets of 2 million dollars or more
- Be between the ages of 67 and 85
- Have a desire to plan an estate to protect one's legacy
Click the PDF icon below if you are curious about what information is requested on a typical application.
 Premium Financing Application Form
OK, show me an example
Example: A lender funds a $20 million life insurance policy on a 75
year old male. During the course of the two year elimination period,
the total loan amount with interest comes to $1.7 million. The
insured then sells the policy on the secondary market for $4 million
thus netting $2.3 million before taxes--all without capital outlay or
risk of any kind!
The above example is by no means atypical. In fact, much higher returns are commonly reported.
Premium Financing in The News
Many of the most most respected financial news sources have reported on Premium Financing including The New York Times, USA Today, and the Robb Report. Please click this link to view these articles.
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