Premium financing is a kind of borrowing or a loan that you can use to purchase a life insurance policy. Loans are provided by 3rd party lenders such as life insurance finance firms & private banks.
High net worth individuals & Premium Finance:
Premium Financing is a famous strategy to buy life insurance used by high-worth individuals, business people & entrepreneurs. Through financing the major part in the form of upfront payment of the life insurance policy, these high net-worth individuals don’t need to give cash or sell their assets to pay the total cost of life insurance beforehand.
How does Premium Financing life insurance Work?
Premium financing life insurance works by letting you get a loan to pay almost equal to the cost, called the premium, to purchase your life policy. Private Banks & premium life insurance lenders provide loans for high-net-worth people. These individuals pay a down payment for the policy premium, & the lender pays the balance.
Most premium finance lenders provide:
- Interest-only loans
- Repayment of Capital at the end of the term
Borrowing limit for your Life Insurance Policy:
Your borrowing capacity for your life insurance policy depends on you. Many private banks will help you to give about 80% to 90% of loan value on the first day of cash surrender worth of your life insurance policy. While novice lenders of the market may try to lend you more money for your life policy, you have to check the conditions & mentioned restrictions imposed by the premium finance lender against the provided loan. 3rd party lenders usually offer finance without requiring assets under management/personal guarantees. That’s why their rates of lending are generally higher than the banks. Such as, private banks usually ask you to open a bank account, give them a guarantee against your loan & try you to invest in their different wealth management services. Hence the costs of taking these additional offers may be expensive for you. So it is worthy that you perform the required research before getting into any such contracts.
Application for life insurance premium finance:
You must take the help of your life insurance broker/wealth manager to apply for premium finance. They need to be experts in their field and capable enough to guide you throughout the premium financing process. Here we have explained a few points so you may apply for life insurance premium financing:
- Ensure that you have an offer or in-forced life insurance policy illustration.
- Examine your bank/lender to ensure they can finance your insurance policy.
- You have to decide how much you need to borrow.
- Select the lender to apply for a loan.
- Fill up the loan application form & send your lender the complete form with a copy of your insurance offer/in-force policy illustration.
- It would help if you got advice from your trustee or financial adviser for your assistance in deciding how you have to purchase your policy.
- Get the approval of your loan.
- Tell your lender about the above procedures.
- Pay the down payment for your policy premium. Also, give the advanced payments of your interest to your finance provider.
- Your life insurance policy has been bought by your trustee or corporate services provider on your behalf. So when your first premium is paid & the life insurer gets receipt of your premium payment, your policy has been established & your life over has started.