Owning a business is the ultimate balancing act, and the bigger the company, the more
complicated the task becomes. Business owners have to consider the financial and material needs
of their businesses and their employees. While employees expect steady income and benefits,
they also want the security of knowing they’ll still have a job— even if something happens to the
business owner.
Too many business owners skip life insurance coverage, assuming that the premiums are too
high or that the money is better spent elsewhere. That’s where life insurance premium financing
comes into play— a strategy that ensures your business-owner clients get the coverage they (and
their business) need without diverting business capital to pay for it.
What is life insurance premium financing?
Life insurance premium financing is a method of leveraging working assets against a loan that
pays for life insurance premiums. A common strategy of both high net worth individuals and
successful businesses, life insurance premium financing ensures that necessary life insurance is
provided without liquidating assets that are already in use.
Financing usually involves three parties: The buyer, the insurance carrier and the lender. The
buyer (in this case, a business) takes out a loan to pay for the high-value life insurance policy.
The insurer then makes the coverage available and the loan is used to make premium payments. In some cases, loan funds can be released before a premium due date and set aside in a demand
deposit account to lower the overall loan interest rate.
At Global Financial Distributors, life insurance premium financing is referred to as Leveraged
Planning®.
Life insurance premium financing may be the answer to your key employee coverage needs.
What are the typical characteristics of a life insurance premium financing buyer?
Both high-net-worth individuals and entrepreneurs use life insurance premium financing. Business owners pursuing this option should generally have a minimum net worth of $1 million and a company established for at least five years. FICO scores should also be greater than 500. None of these ideal characteristics are written in stone, however. About ninety percent of GFD’s clients are business owners.
Life insurance premium financing programs are geared to provide the coverage that your business-owning clients need. They do so without compromising the business’s objectives, which sometimes happens when critical assets are liquidated to pay policy premiums.
When is life insurance premium financing not worth it?
An important determinant of whether life insurance premium financing makes sense is how
much life insurance a business needs. The minimum initial premium should be at least $100,000
with loan terms of 10 years. If a policy is smaller than this, business owners are often better off
buying directly from the insurer.
If your business-owner and entrepreneur clients are interested in seeing how premium financed
life insurance can help their business, Global Financial Distributors is ready to help. GFD
specializes in customization, ensuring that the design and implementation fit each business
owner’s needs. Here are more details on what makes Leveraged Planning® an ideal life
insurance premium financing option.
