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Life Products
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Premium finance allows people with high net worth to purchase life insurance without
liquidating other profitable investments or otherwise changing their normal cash
flow situation. Through this innovative financial arrangement, qualified clients
borrow the funds to pay the life insurance premiums. They protect the net worth
they have built up and pass their financial legacy to future generations.
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Eligibility for Premium Financing
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Because of it complexity, premium financing is not for everyone. If you have financially
sophisticated clients with skilled tax and legal advisors, this strategy may be
appropriate for them. Also, your clients must meet certain eligibility requirements.
To qualify for a premium financing arrangement, clients should demonstrate the following;
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- A need for life insurance.
- Have a minimum net worth of $5,000,000 ($10,000,000 preferable) or more.
- Have verifiable annual income in of $200,000 or more.
- Have liquid assets sufficient to pledge as collateral for the loan.
- Meet life insurance policy underwriting guidelines.
- Commit to at least $1,000,000 in loans to provide premium.
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How Premium Financing Works |
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The premium finance concept is simple your client borrows money to pay life insurance
premiums. The actual transaction itself can be quite complex. For that reason it
is crucial to involve legal and tax advisors in the process.
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While each premium finance transaction is unique, every transaction consists of
two separate financial instruments; a permanent cash value life insurance policy,
and a loan. The process occurs in two steps;
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- The Life Insurance Policy
The initial life insurance application process is similar to any other life insurance
application. The life insurance company will complete medical and financial underwriting
to determine if your client qualifies for coverage.
- The Loan Application
After the policy is approved, a loan application is submitted to the lender for
approval. The lender will review your client's credit and financial status and decide
whether or not to make the premium loans.
Once loan approval occurs your client's premium finance case is underway. The documents
are then sent to your client's legal counsel to be executed, and the policy is funded.
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Legal and Tax Considerations
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Premium financing has tax implication in a number of areas including estate, gift,
and income taxes. Your clients must rely on their own legal and tax advisors to
review and explain the legal and tax issues for their specific case.
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