When it comes to estate planning, high-net-worth individuals have a lot of options available to them. One popular option is life insurance premium financing. This type of policy allows you to pay for your life insurance premiums using a loan from a third-party lender. Here we will discuss the pros and cons of this type of policy, and how it can help with estate planning. We will also go over the steps involved in setting up a premium financing life insurance policy.
Premium financing life insurance can be a great tool for estate planning. It can help you pay for your life insurance premiums without having to use cash or other assets. There are a few things to keep in mind when considering life insurance premium financing. First, you will need to make sure that you are able to qualify for the loan from the lender company. Second, you will need to make sure that you are comfortable with the terms of the loan agreement. Third, you will need to make sure you qualify for the life insurance policy.
Once you have found a lender that meets all of your criteria, the next step is to apply for the loan. The process is typically pretty straightforward. You will just need to fill out an application and provide some basic information about yourself and your life insurance policy. Once you have been approved for the loan, the lender will typically make the premium payment directly to the life insurance carrier.
As with any type of loan, there are some risks associated with premium financing life insurance. The most important thing to remember is that if you default on the loan, the finance company will require loan repayment. This means that they will be able to cancel your policy or change the terms of it at any time. It is important to make sure that you are comfortable with these risks before taking out a premium financing life insurance policy.
Life insurance premium finance is especially beneficial for estates that lack liquidity but require the death benefit to help pay for estate taxes and ongoing expenses when the insured passes away. It can also be beneficial for individuals with large life insurance premiums that are limited as to how much money they can gift outside of their estate.
When using life insurance for estate planning purposes it is important to work with an attorney to draft an irrevocable trust to own and be the beneficiary of the life insurance policy. This will keep the death benefit from being included in the overall value of your estate. Thereby making the death benefit income and estate tax-free. The trust can then be used to purchase assets from your estate while providing liquidity to pay estate taxes
When done correctly, premium financing life insurance can be a great way to help provide liquidity for estate planning. Just make sure that you are comfortable with the risks involved before taking out a premium financing life insurance policy.
Estate planning is an important process for everyone, but it’s especially important for high-net-worth individuals. There are many different ways to approach estate planning. Life insurance premium financing can be one approach. It is important to work with your team of advisors to make sure it is the right approach for your given situation.