subject: Understand Insurance Premium Financing [print this page] Life insurance financing is a complicated concept of life insurance created to allow well off policy holders obtain vast amount of policy while settling some of the costs of the policy all at once. This can be doable if there will be cooperation of at least two financial institutions. This type of investment requires that the policy holder must be old enough to commit himself in the financing agreement to be fit with this sort of arrangement. This type of arrangement often necessitates that the person should be older than age 70 but younger than age 84. Besides, the insured should be physically fit to get a life insurance and should have a net worth of at least $5 million.
The Loan
Premium financing necessitates withdrawal of loan in order to acquire life insurance. These types of loan can be deemed as special loans with small interest rates that are only available through premium financing. They can also be a non-recourse loans that are confined by the insurance policy itself. When we say non-recourse loan, it signifies that the loan is protected by the death benefit of the insurance policy. Even though the plan holder fails to make payments for the loan, the bank is guaranteed to get its money back.
The Life Insurance Policy
Insurance policy is one of the crucial elements in a premium financing arrangement. The policy bought is normally used as a part of a charitable gift but can be employed for various reasons. The cash values of the policy are usually unavailable on hand to the policy holder given that it is secured by the premium finance loan.
Benefits
The major benefit of doing premium finance arrangement is that an affluent individual can bequeath millions of dollars to its recipients while reducing the cost incurred from the premiums at the same time. Conversely, the loan payments can be attained from the interest of the current investments. Considering that payments do not rely chiefly on age or health and the loan is secured by the policy, the bank can give you lesser interest rates to make it become more reasonably priced than premium payments would cost.
Other Considerations
When getting a premium financed life insurance policy you have to take into consideration the reality that you are obtaining a loan to get an insurance policy. Just keep in mind that although you are not making premium payments, you still need to make loan payments. Hence, it is essential that you can afford to pay your loans from financial institutions. Oftentimes, these banks offer loans to policy holders with high net worth because they have assets that could serve as collateral.
by: Cindy McGrant
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