Why would a high-net-worth client borrow money to pay for life insurance when they could just write the check themselves?

That’s really the idea behind premium financing.

Let’s say you’re working with a successful business owner who needs a significant amount of life insurance for estate planning.

They may have the net worth to afford the premiums, but a lot of their wealth could be tied up in their business, real estate, or investments. They could also be earning a higher ROI on their investments, so instead of liquidating those assets, they use the bank’s money to fund the premiums. It’s essentially an arbitrage.

So instead of liquidating assets or using a large amount of cash every year to fund the policy, they may be able to work with a bank to finance the premiums.

Now, this isn’t just about getting a loan and buying life insurance.

The policy design, interest rates, collateral requirements, exit strategy, and how the loan eventually gets repaid all matter.

That’s why these cases need to be structured properly from the beginning.

Premium financing isn’t right for every client, but for the right high-net-worth client, it can be a very powerful strategy.

That’s your Milo Minute.

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