I’m in need to extensive life insurance coverage for my business planning. Is premium financing really helpful?
Total Comments: 7
Posted: Mon Mar 29, 2010 08:48 pm Post Subject:
I would tell you to stay far away from premium financing, but I don't know your specific situation. Is there a specific reason you are looking at premium financing to purchase coverage with? What kind of business planning are you doing? Buy/sell agreement? Executive compensation?
Posted: Tue Mar 30, 2010 04:09 am Post Subject:
I was simply going through a journal which stated how PF might just help me use my funds rather than paying it for insurance.
Buy/sell agreement?
Yes, but no specific situation as yet.
Posted: Tue Mar 30, 2010 04:24 am Post Subject:
There are many potential risks with premium financing that can come back to bite you in the end. It's a very risky proposition and has been under intense scrutiny from state insurance regulators. Here's a wikipedia link explaining some of the risks: http://en.wikipedia.org/wiki/Premium_Financing
If you'd like to discuss your options in further detail without posting it publicly, feel free to send me an e-mail. I can't post my direct e-mail address here, but you can click our website link and use the "contact us" section to find it. We specialize in business insurance and estate planning, over 30 years experience with Chartered Life Underwriter (CLU) and Chartered Financial Consultant (ChFC) designations.
Posted: Tue Mar 30, 2010 01:19 pm Post Subject:
As dgoldenz has said, there are some risks inherent in premium financing of life insurance. PF is common in the commercial insurance realm, where insurers typically do not offer modal premium payments (semi-, quarterly, monthly).
If there was a business use of life insurance involved, such as a buy-sell agreement, PF might make sense, but it's going to involve a collateral agreement with the PF provider, since they are either fronting a single premium or annual premium on your behalf. That will either require an increase in the coverage or a decrease in benefit to the beneficiary upon death.
You need full disclosure of what will happen to the death benefit.
There are also those on this forum who promote universal life insurance with a so-called "secondary guarantee" that if you pay 100% of your premiums on time and without fail, the policy will pay its stated death benefit even if it would otherwise have lapsed due to insufficient cash value. These policies are written with absolute minimum premiums, which make them relatively affordable (not much greater than an equivalent term policy), but everything hinges on NEVER MISSING A PAYMENT.
Miss just one payment, as in when you're hospitalized during a final illness, and the whole plan crumbles at the time you are about to die. Such a secondary guarantee needs to be backed up with a guaranteed method of paying the premium that's essentially beyond your control (like using an annuity to fund an annual premium payment).
Life insurance is not a game you play with the insurance company. They will always win if you treat it as if it were. If your objective is to leave money to those you leave behind, do it the right way, and pay the right amount for your coverage. Don't rely on the words of an agent that "everything will be OK" if you do it this way, unless "this way" is a fully, and properly funded policy.
Posted: Wed Mar 31, 2010 04:54 am Post Subject:
Premium financing is also chosen whenever the rate of interest on your loan is lower than your expected policy returns. It could be a good option if your loan interest rate is lower than what you could have earned by liquidating your assets in order to pay your premiums.
Posted: Thu Apr 01, 2010 05:19 am Post Subject:
I've heard that the underwriting for both the insurance and the loan take place simultaneously. Once he passes the tests (on both occasions), the policy and the loan are approved.
Posted: Fri Apr 02, 2010 05:44 am Post Subject:
In order to go for premium financing you'd first need to understand which life insurance policies work well with this arrangement.
While you're considering the premium financing option, make sure that you inquire about the loan renewable term as well as the requirement of a personal guarantee.
Posted: Mon Mar 29, 2010 08:48 pm Post Subject:
I would tell you to stay far away from premium financing, but I don't know your specific situation. Is there a specific reason you are looking at premium financing to purchase coverage with? What kind of business planning are you doing? Buy/sell agreement? Executive compensation?
Posted: Tue Mar 30, 2010 04:09 am Post Subject:
I was simply going through a journal which stated how PF might just help me use my funds rather than paying it for insurance.
Buy/sell agreement?
Yes, but no specific situation as yet.
Posted: Tue Mar 30, 2010 04:24 am Post Subject:
There are many potential risks with premium financing that can come back to bite you in the end. It's a very risky proposition and has been under intense scrutiny from state insurance regulators. Here's a wikipedia link explaining some of the risks: http://en.wikipedia.org/wiki/Premium_Financing
If you'd like to discuss your options in further detail without posting it publicly, feel free to send me an e-mail. I can't post my direct e-mail address here, but you can click our website link and use the "contact us" section to find it. We specialize in business insurance and estate planning, over 30 years experience with Chartered Life Underwriter (CLU) and Chartered Financial Consultant (ChFC) designations.
Posted: Tue Mar 30, 2010 01:19 pm Post Subject:
As dgoldenz has said, there are some risks inherent in premium financing of life insurance. PF is common in the commercial insurance realm, where insurers typically do not offer modal premium payments (semi-, quarterly, monthly).
If there was a business use of life insurance involved, such as a buy-sell agreement, PF might make sense, but it's going to involve a collateral agreement with the PF provider, since they are either fronting a single premium or annual premium on your behalf. That will either require an increase in the coverage or a decrease in benefit to the beneficiary upon death.
You need full disclosure of what will happen to the death benefit.
There are also those on this forum who promote universal life insurance with a so-called "secondary guarantee" that if you pay 100% of your premiums on time and without fail, the policy will pay its stated death benefit even if it would otherwise have lapsed due to insufficient cash value. These policies are written with absolute minimum premiums, which make them relatively affordable (not much greater than an equivalent term policy), but everything hinges on NEVER MISSING A PAYMENT.
Miss just one payment, as in when you're hospitalized during a final illness, and the whole plan crumbles at the time you are about to die. Such a secondary guarantee needs to be backed up with a guaranteed method of paying the premium that's essentially beyond your control (like using an annuity to fund an annual premium payment).
Life insurance is not a game you play with the insurance company. They will always win if you treat it as if it were. If your objective is to leave money to those you leave behind, do it the right way, and pay the right amount for your coverage. Don't rely on the words of an agent that "everything will be OK" if you do it this way, unless "this way" is a fully, and properly funded policy.
Posted: Wed Mar 31, 2010 04:54 am Post Subject:
Premium financing is also chosen whenever the rate of interest on your loan is lower than your expected policy returns. It could be a good option if your loan interest rate is lower than what you could have earned by liquidating your assets in order to pay your premiums.
Posted: Thu Apr 01, 2010 05:19 am Post Subject:
I've heard that the underwriting for both the insurance and the loan take place simultaneously. Once he passes the tests (on both occasions), the policy and the loan are approved.
Posted: Fri Apr 02, 2010 05:44 am Post Subject:
In order to go for premium financing you'd first need to understand which life insurance policies work well with this arrangement.
While you're considering the premium financing option, make sure that you inquire about the loan renewable term as well as the requirement of a personal guarantee.
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