Not everyone is a suitable candidate for premium finance. After the need for life insurance is established, premium financing might be considered as a method for funding the life contract. But only if the client has the following general characteristics:
- Has more than $5 million of net worth or $300,000 of income
- Needs life coverage for estate tax, estate equalization, liquidity, or for business needs such as stock redemption
- Seeks a high return on assets
- Wants to minimize gift tax exposure
- Feels comfortable using leverage
Although financing offers considerable value, agents and advisors must be careful not to over-promise. The strategy needs to be presented realistically so clients are NOT under the impression that the don’t have to “pay for life insurance”.
With any policy involving premium finance, clients need a clear understanding of how their premium financing loan will be paid off. There needs to be an exit strategy that takes in to account all possibilities. Consistent monitoring of the strategy (ie: yearly reviews and projections) are key to the strategy and provide a strong structure on which to build the concept.