Premium Finance

A premium finance loan is typically structured as follows:

• The insured is underwritten for a new life insurance policy and gets qualified financially.
• The owner of the policy, which is the borrower (ILIT or corporation), agrees to borrow funds from a lender equal to the proposed premium schedule designed (typical 10 years or less).
• The lender takes a collateral assignment against the cash value of the policy and a portion of the death benefit in an amount equal to the outstanding loan balance.
• The owner may be required to post additional collateral in any given year if the loan balance exceeds the cash value.
• The borrower may pay or defer interest annually each year depending upon the design and approval from the insurance company and lender.

The loan interest rate is reset every year, depending on the one-year LIBOR.

• Upon death of the insured, the loan is paid off from the death proceeds and the balance is paid to the owner (ILIT or corporation).
• Alternatively, in some premium finance designs, the owner of the policy may take a cash withdrawal during the insured’s lifetime from the policy to extinguish the outstanding loan and the reminder of the cash value supports the policy thereafter.