Premium Financing FAQ: Everything You Need to Know

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Paul Sundin, CPA

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High-net worth individuals need life insurance. It protects your assets, but the premiums can be high. If your assets are tied up in illiquid investments or you don’t want to give up all your capital to cover the high premiums of life insurance for high-net-worth individuals, you can use commercial premium financing.

With commercial premium financing, you can finance your insurance premiums with a third-party lender. You don’t have to worry about paying the premiums – the lender covers them for you. This only works if you meet specific requirements, though.

Premium financing can also help with needed liquidity upon your death. Not only can it cover estate taxes but it also provides funding for transfer of business assets. 

It also provides a death benefit and can complement any estate plan. But insurance premiums can be expensive. In addition you may need to sell certain illiquid investments to cover the costs. This could expose yourself to capital gains or other tax issues which would reduce your ability to take advantage of your investment portfolio growth.

However there is a solution to this problem. By borrowing money to pay the insurance premiums you can support a large life insurance policy while minimizing taxes and leaving your investment strategy in place.

Premium financing can be a great strategy for asset protection as well as estate planning.

With this structure, a taxpayer can pay interest on a loan and allowed to obtain a large insurance policy while utilizing a low amount of the clients estate tax exemption.

Premium financing allows a person to create an insurance trust that can borrow the money from a lender and pay the annual insurance premiums. Not only does allow for large asset protection but can be critical for estate planning.

But the structure can be complex. That’s why we’ve created a list of many of the FAQs that tie directly into commercial premium financing, make sure you review with your CPA and estate attorney.

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Estate CPA

Gilbert, AZ