– Acquiring needed life insurance coverage while preserving assets and minimizing gift taxes.
Premium Financing is a valuable tool available to clients who recognize the need for life insurance in their estate plan, yet have cash flow constraints or wish to minimize gift taxes. Premium Financing can put a needed life insurance policy in force today while the rest of the estate plan is being finalized.
It can also provide leverage for clients who have high-performing assets and do not wish to liquidate those assets to pay life insurance premiums.
In a Premium Finance arrangement, the policy is typically owned by an Irrevocable Life Insurance Trust (ILIT). The ILIT borrows premiums from a premium finance funder. Interest and expenses on the loan are charged by the funder and may be paid annually or accrued by the ILIT. Collateral is required for the loan and in most instances includes the policy as well as additional assets. Depending on the structure, the loan is repaid at the end of the loan term or at the death of the insured. After repayment of the loan principal, expenses, and accrued interest (if any), the ILIT retains the remaining death benefit proceeds which are then distributed in accordance with the trust document.