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.