Frequently asked Questions
Q: What is Life Insurance Premium Financing and how is it created?
A: Premium Financing is an innovative alternative for funding life insurance premiums. Generally, the premium payments are financed through the creation of a Trust. The investor funds the Trust in the name of the insured with sufficient capital to make timely premium payments throughout the first two years of the policy. This is accomplished through a two year, collateral specific loan to the trust (two years is the minimum period of effectiveness required for a sale in the Life Settlement market.) During its term, the loan is secured by a collateral assignment against the life insurance policy, whereby the borrower has assigned all rights, claims, options, privileges, and interest in the funded insurance policy up to the value of premiums paid to that date. The collateral assignment of the policy ensures that its loan will be repaid in the event of premature death (death during the two year premium loan term). On the anniversary of the second year, the insured has the option of repaying the outstanding loan balance and assuming premium payments, or completing a Life Settlement (the sale of your policy). This provides the insured with a two year financing option period, at the end of which the insured can decide weather to continue coverage or sell the policy for cash.
Q: Who qualifies for the program?
A: The primary candidate for this program is seniors between the ages 70 and 85, with a total net worth of $2,000,000 or higher and without life insurance coverage or with coverage that is significantly below his or her asset value. The candidate must be in decent health, qualifying as at least a Standard or Preferred medical risk for life insurance.
Q: Why doesn’t everyone buy their policy with financing if it’s so good?
A: Not everyone can qualify for the financing program due to age, health, and financial underwriting guidelines. However, premium financing is increasingly being recognized by all professional planners as a key tool in the estate planning arsenal.
Q: What are the risks to me financially?
A: Through the formation of the Trust, the financial risks to the insured are practically non-existent. Because the investor is funding the Trust under a collateral specific loan secured solely by the life insurance policy owned by the Trust, the insured has no financial liability on the loan, the collateral is the Life insurance policy. While there is no direct financial risk to the insured, depending on the facts of his or her situation, it may limit his or her ability to obtain additional life insurance. Remember, an individual can only insure up to their total asset value.
Q: If I die within the loan term, can the lender profit on my death?
A: No, the lender is only entitled to receive the amount which is equal to the premiums loaned plus accrued interest. Any excess over this amount is given directly to your beneficiaries.
Q: Why does the lender offer me such attractive terms while taking all the risk?
A: The lender understands that the policy is good collateral to the loan and is issued by a highly rated insurance carrier. Either the lender will be repaid with attractive interest, or will take over the policy and future premium obligations, upon default of the client. The lender has the right to sell the policy in the secondary market to recoup its capital in the policy or maintain it until maturity.
Q: What type of payment can I expect if my policy is sold in the Life Settlement Market?
A: Assuming the insured elects to sell his or her policy at the end of the two year period, the payout to the insured is dependent on many factors that cannot be guaranteed. These include, but are not limited to: age, health condition, face amount of policy and the fair market value at the time of policy sale.
Q: If I do choose to sell my policy, can I sell it to whomever I wish?
A: Yes, as long as the client repays the loan and interest due, the client can sell his policy to whomever he chooses, or maintain it until maturity and is under no obligation to sell to anyone in particular.
Q: What is the process of Premium Financing?
A: The first step in the process is to fill out a HIPAA application. The application is simple, but provides sufficient information to reasonably evaluate potential candidates. The application requires the applicant to release his or her medical records and also requires a statement of the applicant’s asset value. We will forward to numerous lenders and within 3 - 5 weeks we will receive a preliminary determination of the client’s qualifications.
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