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Bill was an officer at a construction firm when he met an accident at one of his company’s construction sites. At the time of his death he left his family a four-bedroom house worth $1.8 million, a portfolio of stocks, and $100,000 in his bank account.
He also left his family a little over $5 million in insurance policy. The amount surprised his family, who were wondering how their breadwinner got the money to pay for the premium of such a big insurance amount. They never really had to tighten their belts, so to speak, just to pay for that insurance policy.
Bill’s case, however, is not surprising for us. In the insurance industry, you can actually have your life insurance premiums financed by a premium finance company. Premium financing is a fairly new trend and when it first became popular, it actually rode on the moniker “free life insurance”. But it has since been known that free life insurance is actually a misnomer.
A high net worth individual can actually take out a large insurance policy by negotiating a premium finance loan with a premium financing firm. But this should be before the fact of life insurance. You cannot take out a financing program for an existing policy.
Terms And Payment
Different premium financing companies have different policies on interest rates as well as payment terms.
Some base their interest rates on the PRIME. Others base on LIBOR. Some premium financing firms would require the insured to a fixed monthly payment to repay their premium finance loan. At other firms, the loan plus accrued interest can just be deducted from the death benefit. Collateral is also required, although the acceptable value of a collateral varies from one premium finance company to another.
Insurance agents work with an individual in determining the exact amount of his death benefit, which is invariably based on the individual’s net worth.
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Contact: insurance@snrpucc.org