Global Financial Distributors

Leveraged Planning^® programs from Global Financial Distributors are designed to provide clients with options for Premium Financing.

In the most commonly used fashion the term premium finance or premium financing involves the lending of funds to a person or company to cover the cost of an insurance premium.  There is always an insurance product, generally life insurance, as part of the transaction.

Premium Finance generally falls into three broad categories:

• Typical or Traditional - The client enters a fully collateralized loan arrangement with the intention of holding the life insurance policy to maturity.  The loan may be an interest only loan or a amortized arrangement.  The death benefit of the policy is used to pay the loan back with the remainder of the death benefit used for estate planning purposes.

• Non-Recourse - A third party purchases insurance on the client and assumes the death benefit and premium payments. Non-recourse financing is not considered an acceptable life insurance sale due to a lack of insurable interest.

• Hybrid - Partial recourse financing that is generally designed for a short time horizon (2-5 years). Hybrid financing is typically designed for an exit via the secondary (settlement) market where the policy is intended to be sold for a gain.  This financing option is also not favored by insurance carriers.

In the traditional setting, premium financing makes most sense when the individual has a definite need for insurance. Only when the need has been determined should premium financing be evaluated as an option that may allow the individual to retain his assets or income for use elsewhere.  The finance company will lend the premiums to the policy owner in exchange for interest on the loan. The insured then uses the cash to pay the insurance company to keep the policy in force. When the loan period ends or the insured passes away, the principal amount plus interest is paid back to the premium finance company and the owner retains the life insurance policy or collects the death benefit to be paid to the policy beneficiary less the outstanding loan value.

Premium financing also makes sense when the interest rate on the loan is less than the insured could earn on the assets he would have liquidated to pay the premium, or when the interest rate on the loan is less than the policy is expected to earn. An individual may want to enter into a premium financing arrangement to obtain a lower out-of-pocket cost for a policy, to minimize gift tax concerns, and to keep from using cash flow or liquidating assets to pay insurance premiums.

Many business owners will use financing or leverage to jump-start their retirement plans.  Here they, or their business, would borrow money to fully fund a policy receiving the benefits of compounded growth and tax efficiency to create a tool capable of providing income and estate planning benefits.  Where a business is involved the plan can evolve as a deferred compensation program for key employees or owners.

GFD, in cooperation with Global-One, a finance lender, can illustrate potential appropriate uses for leverage in your unique circumstances.