What is Premium Finance
Premium financing involves the lending of funds to a person or company to cover the cost of an insurance premium. Premium finance loans are often provided by third party finance entity known as a premium finance lender; Premium financing is mainly devoted to financing life insurance in large amounts. Northstar Brokerage provide premium financing services through its ZS Platform for these high net worth clients.
To finance a premium, the individual or company requesting insurance must sign a premium finance agreement with the premium finance company. The loan arrangement usually last 5-10 years or to the end of the life of the policy. The premium finance company then pays the insurance premium on behalf of individual or company, usually in annual installments, for the cost of the program.
Typically, clients that engage in this transaction are age 29 to 75; with net worth of $5MM or greater. Younger clients benefit in the current environment due to the advent of premium financed indexed universal life policies.
Premium Finance Benefits
There are a number of benefits to financing insurance premiums. These include:
- Eliminates the requirement for a large up-front payment to an insurance company.
- Multiple insurance policies can be attached to a single premium finance contract, allowing for a single payment plan to cover all insurance coverage.
- Premium financing is often transparent to the individual or company insured. Brokers transmit the completed premium finance agreement to the premium finance lender, and the policy holder is billed for loan interest as they would be for any other typical insurance policy.
- Allows for clients to obtain needed coverage without liquidating other assets.
- The main benefit in premium financing is avoiding high cost in paying premiums out of pocket. By using other people's money (leveraging a lender's capital), clients can retain a significant amount of capital known as retained capital.
- Typical client profile: Age 29 to 75; Net Worth $5MM or greater; Business-owner, entrepreneur, professional; Desire to retain capital whilst maximizing wealth transfer & potential tax-free retirement
- With todays modern of indexed universal life policies and premium finance strategies estate, & asset protection can be achieved.
- Properly structured premium financing may
provide additional tax advantages and also may avoid
The experience and knowledge you gain working with us will help you eliminate unnecessary delays in the future making your sales and your relationship with your clients that much better.