From the start, you should know that premium financing life insurance is usually set aside for high net-worth individuals. If you feel that you fall into this category you may want to consider premium financing life insurance. This allows the insured to borrow money to pay for the life insurance coverage they need. In turn, this allows them to keep their money as opposed to sinking it all into a life insurance policy.
Premium financing life insurance is most important when the consumer has a definite need for coverage. While this may appear to be the free and easy way to obtain life insurance, nothing is further from the truth.
Most people who look into premium financing life insurance are interested in keeping their out of pocket costs to a minimum. And as noted above, this option also allows high net-worth consumers to keep their assets and cash flow in place as opposed to spending it on life insurance premiums.
To get started with premium financing life insurance you will need to not only apply for insurance but also a loan from a lender. In most cases the life insurance company should be able to provide you with information on lenders who are experienced with premium financing life insurance. If both the insurance company and lender offer what you need you can then get started.
Before you decide that premium financing life insurance is right for you consider how much money you have, whether or not you need insurance, and the pros and cons of this type of coverage.
Wiki says "Premium Financing involves the lending of funds to a person or company to cover the cost of an insurance premium. Premium finance loans are often provided by third party finance entity known as a "Premium Financing Company"; however insurance companies and brokerages occasionally provide premium financing services."
To finance a premium, the individual or company requesting insurance must sign a premium finance agreement with the premium finance company. This is a loan contract that lasts for the life of the insurance coverage. The premium finance company then pays the insurance premium and bills the individual or company, usually in monthly installments, for the cost of the loan. There are a number of benefits to financing an insurance premium including the following:
It eliminates the requirement for a large up-front payment to an insurance company.
Multiple insurance policies can be attached to a single premium finance contract, allowing for a single payment plan to cover all insurance coverage. Premium financing is often transparent to the individual or company insured. Brokers transmit the completed premium finance agreement to the premium finance company, and the policy holder is billed as they would be for any other typical insurance policy.
Dangers of premium financing -- Since the interest due on the money lent to pay premiums is tied to an index, usually the LIBOR (London Interbank Offered Rate) if interest rates rise, the total interest charge will rise as well. If the policy owner can't afford to pay interest payments then they stand to lose their insurance and be left with significant debt if the surrender value of the policy is less than the interest owed. [This danger is not accurate. Nearly all premium finance agreements have a fixed interest rate at the date of the loan. The payments and interest rate therefore do not vary for the life of the loan.] Additionally, many premium financing contracts for life insurance are no recourse to the borrower and the insurance policy itself is the only collateral securing the financing.