PREMIUM FINANCE
Premium Financed Life Insurance: A Smarter Way to Secure Wealth
When someone passes away, the last thing their beneficiaries should worry about is financial security. At EMG Insurance Brokerage, we help you secure premium financed life insurance for your clients. Contact us today to learn more about life insurance premium financing for clients and customers.
What Is Premium Financing?
Premium financing is a specialized loan arrangement used to cover the life insurance premium on a permanent life insurance policy. It typically applies to high net worth individuals (HNWIs) or business owners who want to secure coverage without disrupting liquidity or selling off investments.
In a premium financing arrangement, a third-party lender or private bank funds the insurance products on behalf of the policyholder. In return, the borrower pays an interest rate on the loan, similar to a traditional bank loan. The strategy allows clients to retain and invest their capital while still obtaining the amount of life insurance they need.
The insurance policy itself — and its growing cash value — serves as the primary collateral for the loan. Depending on the policy performance and how quickly the cash value builds, additional collateralized assets may be required early on. Over time, the policy’s cash value may be used to repay the loan, offering a self-sustaining strategy for long-term wealth protection.
By using premium financing, clients can access life insurance coverage while keeping their assets invested elsewhere, preserving cash flow, and enhancing their overall financial strategy.
Why Should Someone Use Premium Financing?
Premium financing works by allowing high net worth clients to obtain large life insurance policies without having to liquidate assets. Like using a mortgage to buy a home, financing life insurance lets clients secure a high-value policy while preserving their cash flow and investment strategy.
Consider this real-world example: a client in their late 60s needs a $15 million universal life insurance plan to meet estate planning needs. The traditional out-of-pocket premium would be $300,000 per year for ten years, totaling $3 million. However, with premium financing, they might only pay $50,000 annually in interest, borrowing the rest from a third-party lender. After ten years, their total outlay would be just $500,000 — only 16.7% of the full premium amount.
This flexibility is a key advantage of premium finance. Clients can:
- Borrow 100% of the initial premium and pay only the interest rate annually
- Pay insurance premiums partially and choose to finance the rest
- Customize their repayment and exit strategy based on liquidity, investment goals, and long-term needs.
These arrangements help maintain liquidity, avoid capital gains taxes from early asset sales, and keep assets like real estate or alternative investments untouched.
Ultimately, premium financing life insurance provides a tailored solution for HNWIs seeking maximum life insurance coverage with minimal disruption to their financial strategy.
What Are the Advantages of Premium Financing?
Premium financing offers powerful advantages for HNWIs, business owners, and others looking to maximize life insurance coverage without sacrificing liquidity. By using a financing arrangement, clients can secure high-value life insurance plans while preserving capital for alternative investments, business growth, or a future liquidity event.
A major benefit of life insurance premium finance is its ability to fund large permanent life insurance policies without needing to sell off illiquid assets or trigger taxable events. This makes it an ideal tool for tax mitigation, especially when developing a long-term estate plan that includes irrevocable life insurance trusts (ILITs) or gift tax strategies.
Instead of paying annual premiums out of pocket, clients can use a separate lender to pay premiums annually, maintaining their cash flow and allowing their assets to pay for other obligations or investments. Meanwhile, the cash value of the policy can grow over time and may eventually help to repay loans or support a structured exit strategy.
For the right client, premium financing allows them to keep their wealth working for them while still protecting their legacy with a significant death benefit.
What Are the Disadvantages of Premium Financing?
While there are powerful benefits, they also come with important risks, especially if not managed correctly. The biggest risk often lies with the insured or policyholder failing to meet the funding obligations. If loan interests are not paid as agreed, the external lender may require additional collateral or choose to liquidate the policy altogether.
Market volatility is another factor. Fluctuations in the rates of return or underperformance in the policy’s cash value can increase the cost of the financing arrangement. It can also reduce the policy’s ability to repay the loan. If not structured with a strong exit strategy and reviewed regularly, a poorly designed plan may fail to deliver the expected death benefit or tax advantages.
It’s essential to work closely with knowledgeable financial advisers, counsel for tax or legal advice, and tax professionals. Proper underwriting, clear terms, and ongoing oversight help ensure the plan remains aligned with the client’s financial goals. This solution is best reserved for HNWIs with a steady flow of cash and net worth to support the loan’s collateral and repayment requirements.
How Do I Select the Best Premium Financed Life Insurance for My Client?
Choosing the right premium financing solution starts with understanding your client’s complete financial picture. This strategy is best suited for high-net-worth individuals or business owners seeking significant life insurance coverage while preserving liquidity and maintaining investment flexibility. Look at their annual income, net worth, illiquid assets, and overall estate plan. It will help determine if life insurance premium finance is a viable option.
The premium finance market is tightly regulated and typically limited to clients with substantial assets to pay for long-term strategies. If your client requires a sizable universal life or whole life policy and would prefer to keep their flow of cash or other investments intact, then financing life insurance may be the most tax-efficient and cost-effective route.
Partnering with a trusted insurance advisor or licensed insurance broker who specializes in premium financing arrangements is critical. These professionals understand how to navigate underwriting, structure financing arrangements, and work with private banks and other lenders to secure optimal loan rates and terms.
In many cases, insurance agents must collaborate with a brokerage general agency (BGA) that has established relationships with financing companies and insurance providers. A well-qualified BGA offers support with policy performance review and loan repayment strategies, and can also help you tailor a life policy to meet the specific care planning or tax diminution needs of your client. Always involve a team of independent professionals, including legal and tax advisors, to ensure full compliance and proper execution.
How Do I Find the Best Premium Finance Brokerage General Agency?
Finding the right premium finance brokerage general agency (BGA) is key to successfully offering your clients the right insurance solutions. Start by identifying firms with proven experience in premium financing and established relationships with top insurance companies and third-party loan providers.
Look for agencies that:
- Specialize in premium financing and understand the nuances of financing life insurance for high-net-worth clients or business owners with complex estate plans or liquidity needs.
- Offer access to multiple life insurance carriers, including those known for favorable policies, competitive interest rates, and flexible financing arrangements.
- Provide full back-office support, including underwriting, loan repayment guidance, and policy management services, helping you maintain focus on advising your clients.
- Deliver consistent, knowledgeable service, not just a persuasive pitch. An ideal BGA has a responsive team that supports your needs from initial case design to the “loan is repaid” strategy.
- Assist with navigating collateral requirements, managing cash value of the policy, and aligning the structure with the client’s tax mitigation goals.
A reliable insurance brokerage can be the difference between a successful premium financing strategy and a poorly executed one. Always ensure your chosen BGA has the knowledge and advisory services to help structure sound, compliant, and beneficial solutions for your clients.
Emg Can Help – Contact Us and Get the Help You Need to Grow Your Business Today
At EMG Insurance Brokerage, we specialize in premium financing solutions that help agents and advisors serve high-net-worth clients more effectively. As a full-service brokerage general agency (BGA), we support you from submission to commission, handling the complexities of financing life insurance so you can focus on client relationships.
With access to over 30 life insurance carriers, including those offering universal life, indexed life insurance, and irrevocable life insurance trust (ILIT) options, we tailor premium finance strategies to meet your client’s goals — whether they’re managing estate taxes, addressing liquidity needs, or seeking to keep their cash invested.
Our premium finance team supports every stage, including:
- Client consultation and custom case design
- Coordination with third-party lenders and management of loan rate structures
- Underwriting and policy performance planning
- Structuring exit strategies, additional requirements, and ensuring policy owner protection
- Ongoing reviews to adapt plans to market shifts, interest rate changes, or updated cash flow needs
Whether you’re an independent professional, a licensed insurance agent, or part of a private bank looking to offer “premium is paid” solutions, we’re here to help.
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Ready to grow your business? Connect with us by phone, online, or in person and schedule a consultation today to discuss whether premium financing is a good fit for your clients.
10000 Memorial Drive,
Suite 200
Houston, TX 77024
