Premium Finance

Your clients have worked hard to create significant assets for their families, and perhaps even a business, and it’s important to protect them adequately. Clients want to be assured their family can maintain the lifestyle they have become accustomed to without the fear of running out of money, regardless of their health situation. If they are business owners, they may want to protect key people within their company, fund a buy-sell agreement, a deferred compensation plan or other selective benefit plans. Regardless of their motivation, life insurance plays a significant role in protecting their interests.

premium finance

Life insurance is a valuable financial planning solution that often requires large premium payments. Many business owners and high-net-worth individuals haven’t invested as much as they should or could in life insurance. Cash flow can become an issue – many people find themselves asset rich, but cash poor. Their assets are illiquid. However, if there is an issue when it comes to purchasing life insurance, it’s more than likely to be an issue for your family or business if you pass prematurely. Learn about the opportunities available to implement a solid financial plan. 

What is Premium Finance

Premium financing is a popular insurance and estate-planning technique. It is an agreement that involves the lending of funds to a person, company, or trust to pay an insurance premium. These loans are provided by a third party, typically a bank, at favorable rates and the borrower will be required to pay the interest on an annual basis. In addition to the interest rates, collateral will be needed – starting with the life insurance policy. A well-designed premium finance strategy can strengthen an estate or business plan and help overcome planning obstacles – such as cash flow to pay premiums without liquidating assets.


Business owners and high net worth individuals with money tied up in illiquid assets or demand a higher rate of return

  • Max age of 60
  • Budget/Premium: $50,000 out of pocket
  • $500,000 of income or net worth of at least $5M
  • Ability to post collateral
  • Higher-risk tolerance

Benefits of Premium Financing

Premium financing is a cost-effective and tax-effective method of paying life insurance premiums once the need for life insurance has been established. Some of the benefits of premium financing include:

  • Low financial risk
  • Preservation of income and capital
  • Flexibility
  • Minimization of elimination of gift taxes on policy premiums
  • Economic advantage
Borrowing Phase
Premium Finance Exit Strategy

How Does Premium Finance Work?

Working with your financial advisors, you will determine the need for and the amount of insurance.

  1. Lender reviews your credit and financial information – terms of the loan are negotiated, including defining the collateral requirements.
  2. The life insurance company reviews loan information and approves your life insurance application
  3. Policy owner borrows from the Lender to pay a premium to Insurance Company (The policy cash surrender value is used, along with other assets, as collateral for the loan.)
  4. Depending on the terms of the loan, the loan interest is paid in cash, capitalized or can be paid from the Life Insurance Policy.

How Advisor’s Resource Can Help

Planning for the future financial security for your clients and their heirs requires thought. We work with you to establish both loan design and a funding strategy. If this situation sounds familiar, you more than likely have clients that are a perfect match for our Premium Finance program. Let’s work together to determine the best strategies to improve your client’s financial situation.