The Need For International Premium Financing
John Witteveen really thought his uncle Geoff was a cheapskate until the day came an insurance agent came knocking at his door and told him that he'd been named the beneficiary of a $23 million life insurance policy that his uncle took out during the last years of his life. The sheer amount of the death benefit puzzled Geoff.
"Do you mean to tell me that my uncle sold his California ranch just to pay for this insurance policy?!"
Of course, the insurance agent had a ready reply. "Of course not. Your uncle negotiated a premium finance loan with a premium financing company. Your uncle's life insurance policy was loan collateral for a time."
It wasn’t the first time that John had heard about premium financing. He’s heard it before from his friends who first said it was free life insurance.
The Skinny On Premium Financing
Of all the things that premium financing is, it NOT a free life insurance policy. It is actually a loan that is tied specifically to life insurance. The loan can only be used to pay for the premiums of a life insurance policy amounting to millions.
Depending on the premium financing company, an individual may negotiate the loan so that the company pays the life insurance policy, and he then pays the loan in monthly installments. Alternatively, the loan can be paid when the insured individual dies. The balance of the loan plus interest is simply deducted from the death benefit, and the rest of the amount is then turned over to the named beneficiary.
Interest rates vary for premium financing loans. Some companies charge LIBOR+1 or PRIME+2. Some companies require collateral equivalent to 100% of the loan amount while others require collateral equivalent to only 25% of the loan amount.
Why You Need Premium Financing
Premium financing loans are very popular among senior citizens with a high net worth. But the market is not limited to grandfathers and grandmothers or John’s case, uncles.
If you want to bequeath millions to your loved ones, but don’t want to sell or tie assets just to pay for the premiums, then you should seriously consider a premium financing loan.