What is Premium Financing?

Premium financing is a loan strategy that enables businesses and high-net-worth individuals  (HNWIs) to secure high-quality life insurance. With premium financing, business leaders can effectively plan for their future and the future of their company –– without disrupting cash flow or liquidating assets in the present.

How Does Premium Financing Work?

Life insurance premium payments vary based on a number of factors. However, one general principle holds true across the board: the more expensive the coverage, the higher the payments. As such, life insurance policies that exceed $1 million may cost the policyholder tens (or even hundreds) of thousands of dollars per year in premium payments.

However, businesses or HNWIs may not have that amount of extra capital free to make insurance premium payments. Rather than liquidating assets (or diverting current operating cash flow) to cover costs, businesses and HNWIs can instead choose to use them as collateral for a premium financing loan. A premium financing loan covers the cost of a life insurance premium in exchange for payments to be made at a later date (often from the surplus cash value of the insurance policy).

This way, businesses can simultaneously acquire life insurance for key personnel without having to sacrifice valuable assets. 

What are the Benefits of Premium Financing?

Some noteworthy advantages of premium financing include: 

  • The ability to leverage current assets and holdings to secure a life insurance loan. 
  • Cash-flow continuity and retention of key business assets (such as real estate or specialized equipment).
  • New growth opportunities thanks to extra available capital. With premium financing, businesses and business leaders can utilize capital that would otherwise have been spent on insurance premiums. This capital can then be put toward business ventures that will produce high returns on investment. 
  • High levels of customization. Premium financing helps businesses and business leaders customize their insurance policies to secure the coverage and financial flexibility they require. 
  • Potential tax benefits through features like an irrevocable life insurance trust. 
  • Access to excellent life insurance that offers full coverage for high-income individuals. 

Premium Financing Stipulations

Premium financing is not a viable option for all businesses and business leaders. Individuals that meet the following criteria are best-suited for premium financing:

  • Substantial insurance requirements.
  • Have a net worth in excess of $2 million (at minimum).
  • Possess the necessary assets to act as collateral for the loan.
  • Comfortable with leveraging.
  • Require healthy cash-flow and/or are reluctant to liquidate assets to make payments. 
  • Can be insured at standard rates or better. 
  • Satisfy underwriter’s regulations.

Premium Financing for a Better Future

When you partner with the professionals at Helm Financial, you’ll gain access to a dedicated team who will work closely with you to form an insurance policy that fits your situation. Premium financing options are unique to each business and individual that applies for them. Our team understands this, and we’ll collaborate with you to find an ideal insurance solution for your overall succession plan. Contact us below to learn more about our process!

Ready to see if premium financing is right for your business?

Contact us to start the process.