Investing in life insurance can be a crucial decision for growing businesses and high-net worth individuals (HNWIs). Businesses may need to protect their own interests by taking out a key person life insurance policy on an executive. And business owners may need to purchase personal life insurance to safeguard their own financial prospects. Regardless, businesses and HNWIs often utilize premium financing methods to cover this investment.
What is life insurance premium financing? In simple terms, premium financing is a loan that businesses or HNWIs take out with a third-party lender to cover their premium costs. Over time, the policy holder can use the surplus cash value that their policy accumulates to pay back the principal of the loan. In this blog, we’ll share three important facts about premium financing that all businesses and HNWIs should know.
Premium Financing Allows for Businesses & HNWIs to Access Full Insurance Coverage
First and foremost, premium financing is a tool businesses and HNWIs can use to get all the insurance coverage they need. Remember, the more coverage a policyholder seeks, the higher their premium payments will be. Unfortunately, the premium payments associated with very high-end insurance plans may cost tens of thousands of dollars per year. This may be a prohibitive cost for some businesses and HNWIs. Rather than settling for insufficient coverage, premium financing enables businesses and HNWIs to access the full insurance coverage they require.
Premium financing can be an extremely beneficial way for businesses and HNWIs to protect their future without compromising their current financial position.
Premium Financing Offers Immediate Business Benefits
As established above, high-end life insurance premiums can be incredibly expensive. Without premium financing, businesses and HNWIs could — potentially — have to liquidate assets or pause certain projects just to afford life insurance coverage. For example, a HNWI who possesses a large number of stocks may not have the physical cash on hand to pay expensive life insurance premiums. Thanks to premium financing, though, businesses and HNWIs can instead retain financial flexibility — as well as their assets — and focus on growing in the immediate future. Having extra cash on hand can represent a serious financial advantage for many businesses and HNWIs.
Premium Financing is Not for Everyone
Premium financing for life insurance is a service that is reserved for businesses and HNWIs that meet certain thresholds. For one, the business or HNWI in question must have a net worth in excess of $2 million (though this figure is often higher). Second, the business or HNWI must have a healthy cash flow and necessary assets to act as collateral for the loan. Third, the life insurance policy needs must be substantial. And lastly, the insured person must be able to be insured at standard rates or better. Remember, premium payments are determined by both the amount of coverage required and the individual’s health. This is why it’s particularly important for HNWIs to pursue premium financing at a young age.
Premium financing can be an extremely beneficial way for businesses and HNWIs to protect their future without compromising their current financial position. At Blue Herring, we can help your company meet its insurance needs and plan for the future with confidence. We’re experts in this field, and we’ll work closely with you to produce positive outcomes. Contact us here to learn more or to get started today.