Premium Financing = Leverage for Individuals

Premium financing uses leverage to multiply the cash value in your life insurance policy.

With the proprietary strategy recommended by Shoreview Insurance, a bank loan triples your IUL premiums: you contribute $1X, the bank contributes $3X.

In contrast to many (or most) premium-financing plans offered in the market, the preferred, proprietary vehicle recommended here requires neither collateral nor personal guarantees. This strategy is specifically designed so that the participant is not required to go through financial underwriting or sign any loan documents.

If you are concerned about your retirement and think you are not saving enough, you will understand how this proprietary premium-financing strategy is a smart and efficient way to build and secure your retirement. Or, if you have a family and would like to create a family legacy (in your estate or in an irrevocable life insurance trust (a dynasty trust)), then premium-financed life insurance is one of the best ways to accomplish your goal.

The 3X leverage is achieved through bank loans secured by the life insurance policy itself. This preferred vehicle is so secure and solid that the bank needs no further security.

Leverage enables substantial policy growth and flexibility, with substantially less personal financial sacrifice than without premium financing.

Premium financing leverages the funding you have available to buy more of the benefits you want or need. It achieves a better financial result than available through savings and traditional life insurance alone.

Retirement Income

The tax-free retirement income available to you when you use this preferred strategy is about 60% to 100% more than it would be if you invested the same amount of premium in IUL without the 3X leverage. Under any reasonable assumptions, this plan beats a taxable investment account by far.

Death Benefit Protection

A permanent life insurance policy with living benefit riders that can provide benefits in the case of:

  • Critical Illness (cancer, heart attack, stroke, etc.)
  • Critical Injury (coma, brain injury, paralysis, burns)
  • Chronic illness (assistance with daily living, bathing, eating, dressing, transferring, etc.)
  • Terminal illness (illness where death is expected within 12-24 months. Term varies by state.)

Cash Accumulation

  • Upside Crediting Potential (interest credited based on market index)
  • No Loss of Cash Value, 0% Floor (no negative crediting due to declines in an index)
  • Potential Growth Tax-deferred
  • Potential Tax-free Withdrawal (access to cash value using tax-free policy loans and withdrawals)

The Use of Leverage

Using leverage is a very common practice for most people. We use leverage to finance a home, buy investment property, or buy a business. So, it would make sense to use leverage to enhance your wealth-building and security.

Think of leverage in the following ways. You purchase items today with the hope that their value will appreciate. Leverage allows you to enjoy more, sooner, and for a longer period of time. Some examples of this would be:

  • You use leverage to buy a bigger house today.
  • You use leverage to purchase an investment property to rent or flip.
  • You use a loan to expand a business without tying up your cash flow.

The decision to use leverage is driven by the idea that the money you borrow will grow at a rate of return higher than the cost of borrowing. And, at the very least, you get to enjoy the benefits of these purchases today. With premium financing, you use leverage to obtain more benefits and potential cash accumulation now and for your retirement future.

Preferred Candidate for Premium Financing

While not rigid, meeting the following ranges of conditions may qualify a candidate for premium financing:

  • Age:  18 – 65 (age 35 – 55 better)
  • Minimum annual income: $100K – $400K (or min. net worth, below)
  • Minimum net worth:  $500K to 1+ million
  • Good health
  • Ability to make five annual payments of $20+K
  • Qualified for Death benefit of $1.0 million or greater

How It Works

In years 1 – 5, you make an annual premium payment. A preferred bank matches your five premium contribution approximately 1:1 in years 1 – 5. After year 5, you make no more premium payments, but the bank matches your previous premium contributions roughly 2:1 in years 6 – 10. In other words, overall, the bank contributes about 3X the amount of your contributions. The policy is then allowed to “cook” in years 11 – 15, allowing cash value to grow. The bank charges a low interest rate (e.g., LIBOR plus 1.75%). After 15 years (give or take), a policy loan is used to pay the bank the loan amount plus interest, and then you own the policy free and clear.

Why does a bank participate with such low-interest loans? Because the bank is confident that the life insurance policy will not be surrendered and, therefore, it will collect its loan principal plus interest after 15 years. In other words, for the bank, it is a safe investment with a reliably predictable return. Especially since you, the owner, have “skin in the game” through your premium payments in years 1 – 5, and also because the policy is such a valuable asset, these policies are rarely abandoned.

The plan is managed and serviced in years 1 – 15 by the third-party administrator that created the plan until the loan is repaid to the lender.

Stress Tested

The preferred, proprietary plan recommended by Shoreview Insurance has passed “stress tests” under Great Depression conditions of the 1930’s and high-inflation conditions of the 1980’s.

Exemplary Calculations

Assuming five annual premium payments of $30,350 (i.e., a total of about $152K), and assuming an annual crediting rate of 6.42% (in fact, the reality is always erratic and unpredictable), a 40-year-old male starting the program now might expect to receive an income (i.e., tax-free policy loan) of $96,000 annually from age 65 through age 90, and still have a remaining death benefit of $1.3 million.