Life Insurance Premium Financing

There are certain responsibilities that come along with adulthood - whether we like them or not; one such responsibility is ensuring that our families will be cared for in the event of our death. Certainly while death - our own or those we care about - is not something that any of us relish addressing, it must be acknowledged in order for us to plan appropriately.

For anyone who has been through the process of choosing appropriate life insurance for themselves and their families, they are at least somewhat familiar with the variety of options available to consumers; including term life insurance and whole life policies. An insurance agent is charged with helping their clients choose from among the policies available to them according to what best suits their present needs, as well as how the policy will hold up in the future.

One of the elements on which many consumers - both individuals and companies purchasing plans for employees - base at least part of their decision on which life insurance policy to choose is the cost of the premiums. A life insurance policy is essentially a legal contract into which the insured and the insurance company (the insurer) enter; the insurance company agrees to provide the insurance policy as outlined in the initial agreement; in exchange the insured agrees to pay their yearly premiums to fund the policy.

Insurance premiums vary tremendously according to the policy itself, the length of the terms, and the health and age of the insured. In some cases, the premiums can be a deterrent for consumers to choosing the policy that makes the most sense and will be the most beneficial for the insured and their family. The simple fact is that if the premiums are high, the life insurance policy - comprehensive or not - may only serve to financially burden the insured for a number of reasons.

There are programs, however, that can help make the payment of insurance premiums more manageable so that individuals and companies do not have to compromise on coverage.

One such program is life insurance premium financing. Through life insurance premium financing the money needed to cover the premiums over the life of the insurance policy are loaned to the insured. The lender then recoups their money when the policy is paid out or through manageable monthly payments made by the insured.

The Ins and Outs of Life Insurance Premium Financing

Life insurance premium financing is simply an alternative for funding a life insurance policy; an alternative that can provide the insured with the insurance that they need without the upfront costs and significant yearly premiums.

In most cases, life insurance premium financing is used to accommodate wealthy clients who cannot - or do not wish to - liquidate their holdings to pay for insurance premiums, as such premium payments would interrupt their cash flow or impact investments.

With life insurance premium financing the life insurance policy itself is established as an irrevocable life insurance trust - in that the insured relinquishes all control to the policy and the trust gets passed to the beneficiaries upon the insured's death. People set up an irrevocable trust so that the life insurance policy is not included in their net worth thereby lowering the amount subjected to estate tax upon their death.

This irrevocable trust is then responsible for paying the premiums on the life insurance policy but the money must come from somewhere. Subsequently, the trust applies to a lender for a loan to cover the life insurance premiums; the lender then funds the trust and the trust pays the insurance premiums to the insurer. The collateral used is the worth of the policy itself.

Who Benefits from Life Insurance Premium Financing

Life insurance premium financing can help a number of different groups and individuals, including:

Wealthy insured. For those with a high net worth, life insurance premium financing can allow them to get the coverage that they need without tying up their investments or interrupting their cash flow.

Insured who cannot afford premiums but do not wish to sacrifice comprehensive coverage. For those individuals who wish to provide their families with the most complete insurance coverage available to them - but do not have the financial means to pay the hefty premiums - life insurance premium financing allows them to "trade up" their insurance coverage.

Companies. Those businesses that wish to provide life insurance policies for their employees but do not wish to tie up their finances in premium payments often turn to life insurance premium financing.

Who Offers Life Insurance Premium Financing

Life insurance premium financing can be purchased through banks, premium financing companies that focus solely on this type of lending, and life insurance companies themselves.

Lenders that provide life insurance premium financing are either reimbursed upon the payout of the life insurance policy; the remaining amount of the policy payout is then passed to the beneficiaries. Or the lenders are paid by the insured on a monthly basis. This benefits the insured in that the monthly payments are much more manageable than the yearly premiums and the life insurance premium financing allows them to avoid the significant upfront costs required to purchase a life insurance policy.

The National Ethics Bureau is an independent organization that promotes consumer confidence by providing a one-stop source to verify the business ethics of insurance and financial advisors. We are a long time member and passed the Ethics Check System, a series of comprehensive background checks for criminal, civil, and business violations. www.ethicscheck.com

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