Estate Planning

Life Insurance Premium Financing

By Gregory Herman-Giddens

Many of us could use more insurance for estate planning  purposes, such as financial security  for loved ones or payment of estate taxes. Most of us also have an unused asset, our insurance capacity. That is the amount of insurance for which we could qualify and is based on the projected value of our assets at life expectancy. For most people, the capacity is unused because of a reluctance to pay hefty insurance premiums.

Suppose you could obtain the insurance now, while you are healthy, and let a lender pay the premium?  With premium financing, using the life insurance contract as the primary collateral, that is possible.  The result is significant life insurance coverage at very little cost.

After obtaining the insurance, you will have several options options available:

• Your health may deteriorate and the best course of action could be to pay off all the loans and keep all the insurance.

• Or you could keep some of the insurance and sell some of the insurance. Then you could use the proceeds from the sold insurance to pay for the insurance you keep.

• Or you could just sell all the insurance coverage and keep the proceeds for your heirs.

When done properly, the financing programs allow you to buy now and decide later, based on the circumstances, how much coverage you may want.

The exit strategy of selling the insurance allows you to profit, even though you keep none of the insurance coverage.

To avoid estate taxes, the policies are owned by an irrevocable life insurance trust.

Everyone’s situation is unique, of course, and these plans can be specifically tailored for your circumstances.  However, premium financing is generally available only to those with multi-million dollar estates.  Folks of more modest means must get life insurance the old-fashioned way - by paying for it.

Full post as published by North Carolina Estate Planning Blog on June 26, 2008 (boomark / email).