Premium Financing for Life Insurance
Starting a life insurance policy is a major step in planning for your family’s future. Unfortunately, high quotes and premiums aren’t the most comforting factors. Even if you understand the importance of a quality life insurance policy as part of your overall financial plan, the cost alone can sometimes prevent you from following through. Luckily, there are ways to alleviate it, and there’s no better option than premium financing.
What is Premium Financing?
Premium financing is a type of loan in which a 3rd party lender pays off high premiums, allowing the insured to make smaller monthly payments. This arrangement generally lasts for the entirety of the policy, allowing the insurance payout to cover any remaining debt.
It differs greatly from a traditional loan because there are no personal guarantees. Of course you do have to pay your smaller monthly fees, but outstanding debt is covered by the life insurance payout instead of your real life assets. With proper cooperation between the lender and the carrier, you’re also getting a plan meant to maximize your gains, and reduce the need for said outside collateral.
Is Premium Financing Right for You?
This route isn’t for everyone. If you’re looking into a modest policy, your monthly payment could be as low as around $30, depending on age, coverage amount and health. Premium Financing wouldn’t make sense in this situation. On the other hand, if you’re looking for a multimillion-dollar life insurance policy, those premiums could be several thousand dollars per month. That adds up to a small fortune annually; a small fortune many people don’t have.
If the second case sounds like you, chances are most of your net worth is in assets like property or stocks, i.e. assets that will continue to grow, and it can be nearly impossible to meet those payments without liquidating. That means losing significant income streams, and can result in a heavy capital gains tax. That’s just not an option for most.
Also, one of the primary purposes of life insurance is to leave a financial legacy for your children, in addition to other assets you may have. Premium financing let’s you provide both. By allowing the lender to take on the upfront burdens, you can keep your money doing what it was meant to do: making you more money. This is a fine example of the power of using “OPM”, or “other people’s money”, to build your own wealth.
Premium Financing to Augment Retirement Funds
In addition to using the process to ensure your family is taken care of, you can use premium financing to ensure that you are taken care of in your golden years. With a loan secured by life insurance pay offs, you can put a large sum of money away now, letting it compound with interest. By the time you reach retirement, it is likely that your fund will have grown to your intended goal, providing you tax-free income at retirement.
Without this method, you could be stuck putting away massive portions of your yearly income. Once again, if most of your assets are tied up, or you are properly investing, this isn’t always easy. Instead, you can use a leveraged wealth creation plan, and set aside the appropriate lump sum, paying it off in manageable chunks. You’re taking little to no risk in the scenario, because the lender has your insurance payout to fall back on.
Life insurance isn’t really optional anymore. Neither is your retirement plan. Fortunately, with premium financing, you can take care of both on affordable terms. If you want your loved ones taken care of, or if your retirement is in need of a cash infusion now, you need a policy that can do both. That doesn’t mean that you have to ruin your present day finances to do so. Come talk to us a Sage Investment Group, and we will show you how premium financing can help you too.