AN EFFICIENT ALTERNATIVE METHOD
FOR FUNDING LIFE INSURANCE PREMIUMS
Life insurance can provide very attractive financial protection and accumulation benefits, such as:
• An income tax-free death benefit.
• Tax-deferred cash value growth.
• Tax-free access to cash value—reserve account or alternative retirement solution.
• Asset and creditor protection, depending on ownership and state of issue.
However, the purchase of a policy often has a high opportunity cost and tax implications, which can cause high-net-worth individuals to forgo these acquisitions.
Premium finance is an alternative and an efficient method for funding life insurance premiums. Premium amounts are borrowed as opposed to paying them out of pocket, much like financing real estate. The initial cost then becomes only the loan interest. The loan is collateralized primarily by the policy’s cash value with any shortfall covered by pledging personal assets. This strategy results in the retention of the opportunity cost of moneys that would have been otherwise directed to pay premium and also in the elimination of potential tax implications.