I do my best to stay active and current with all things Life Insurance. I belong to the Society for Financial Services Professionals. I discuss products and case design with colleagues. I also pay close attention to any correspondence from AALU, NAIFA, and Carrier Advanced Markets departments.
Life Insurance has so many practical applications and there is so much nuance, yet – in my experience- you will never find a topic that draws more interest and participation than Premium Financing. In fact, I am certain that this blog post will receive a substantial percentage higher of hits than my average blog post just because of the name.
With all the attention given to Premium Financing you would think that it would be utilized as a strategy often. But it isn’t.
Here are the most common reasons why:
- Not every case with a six, seven, or eight figure premium requires financing. Many times, clients can pay the premium outright or they are able to utilize any number of methods of private financing. (We always suggest exploring these avenues before looking at commercial financing)
- Clients are not comfortable with the amount of personal assets that may be collateralized in the early years. This issue can be mitigated with proper disclosures as early in the process as possible.
- A lender is chosen based on merits other than Premium Financing. This issue can be mitigated by working with experienced parties.
- The premium is not “big” enough. It is a common misconception that as a premium reaches $100,000 it is a candidate for commercial financing. Since lenders offer better rates as the amount of premium grows, the arbitrage at lower amounts can be less attractive to clients.
- Financing is NOT Free Insurance. Too often we are asked to look at Premium Finance cases where the client believes they are getting tens of millions of dollars in free coverage. However, the sale is lost once it is explained to the client that they are responsible for interest payments (annually increasing or leveled) or that they may not be able to exit as early as illustrated or that there may be additional collateral required pending product performance or that their product and payments can be sensitive to an index, carrier performance, interest rates, etc.
So here is the good news. If a client is not the right fit for commercial financing but they need coverage, there is a way to get them coverage. If a client is a right fit for commercial financing, it is important to ally yourself with experienced experts as soon as possible to make the process go as smooth as possible.
We are here to assist you in either scenario.