Helpful InfoPremium Financing FAQ's for the Consumer
What are the general terms of financing a life insurance policy? Life insurance premium financing programs allow individuals who have a need for life insurance to finance the premiums. In some financing programs, the Borrower is able to capitalize all costs and interest expense. With premium financing, insureds can purchase life insurance with little or no cash outlay. Cambridge Financing Company’s (CFC) program allows all costs to be paid currently or to be capitalized. Interest rates vary on loans, depending on the financing structure and the collateral posted to secure the loan. Most loans are prime-based. The underlying policy is the primary source of collateral. In addition to the underlying loan, the CFC program requires additional collateral equal to 100% of the total loan. Contact a Life Insurance Concepts Representative Today. Loan terms are typically between three years and lifetime. We have flexibility with some lenders to customize the loan to suit your particular needs and it is our goal to finance the loan for as long as possible. Contact a Life Insurance Concepts Representative Today. How do I benefit from this program? Financing your life insurance policy enables you to acquire the amount of insurance that you have determined is necessary to meet your objectives. Without using your cash flow or liquidating assets, you can take full advantage of life insurance amounts that solve your estate tax, wealth transference or wealth replacement objectives. At the end of the loan term, you can pay off the loan and become the absolute owner of the policy. This is a very compelling option that should be considered strongly at the appropriate time. Contact a Life Insurance Concepts Representative Today. How do my beneficiaries benefit? If death occurs during the loan period, the beneficiaries receive the net death proceeds after paying off the total loan spelled out in the contract. For example, assume the premium is $500,000 per year and death occurs sometime during year two on a $5 million policy. The net proceeds would be $5 million minus [two years of premium ($1,000,000), interest expense and fees which could be another $100,000, a total of $1,100,000] resulting in a net death benefit of $3,900,000. (These are approximations for illustrative purposes only.) The beneficiaries will benefit by receiving a larger part of the gross estate. Further, estate taxes can be reduced and liquidity will be provided to pay estate taxes. Contact a Life Insurance Concepts Representative Today. What is the profile of the typical client for this program? To qualify, you must have a legitimate need and desire for life insurance, have a net worth of $5,000,000, be in good health and be between the ages of 70 and 85. Contact a Life Insurance Concepts Representative Today. How do state insurable interest rules apply? Life Insurance Concepts’ affiliated financing company, CFC, believes that when the life insurance is purchased without investor participation and on a need driven basis to qualified buyers, insurable interest should not be an issue. To assure our clients and carriers that each policy financed is compliant, we suggest that consumers make every effort possible to acquire the loan from a firm that will issue an opinion letter that addresses insurable interest from a law firm in the state where the policy is issued. Contact a Life Insurance Concepts Representative Today. Are there any cash payments or other inducements that may be treated as (1) payments to an unlicensed insurance agent, (2) rebates, (3) benefits making the insured an “investor” or (4) payments making the insured liable for improperly participating in a private securities transaction? No. Although we are aware of some agents who have engaged in some of the actions described above and some who continue to do so, we believe they are the exception, not the rule. Professional agents, representing consumers with real needs for life insurance, do not engage in unethical or illegal practices. Further, insurance companies have implemented procedures designed to identify and deter these types of activities before proceeding with underwriting. If anything in the process seems suspicious, we suggest you seek other opinions and obtain everything in writing. Contact a Life Insurance Concepts Representative Today. Have all parties: insured, trustee, insurance agent/broker – made full disclosure of all requested and relevant details to the insurance company and its representatives? Yes. The Cambridge program is completely transparent. We view insurance carriers as partners and disclose all details regarding our financing program to be compliant with their procedures for premium financing. Contact a Life Insurance Concepts Representative Today. Is the loan “non-recourse” or do transaction circumstances or details create a recourse loan transaction? Does the fact that the arrangement is structured as a recourse loan make a meaningful difference in the outcomes? The Cambridge loan program is a recourse loan, requiring collateral in addition to the underlying policy. We believe that recourse is a necessary structural requirement to gain carrier approval and acceptance. Today, insurance companies want to know that financing is being utilized by consumers who have “skin in the game” or in other words, are not financing because the insurance is “free”. Life insurance policies have been successfully financed for decades on a recourse basis. A legal opinion is provided for each and every loan that opines on the legality of the structure. Contact a Life Insurance Concepts Representative Today. What is the full repayment cost if the insured decides to keep the insurance? Does the transaction make economic sense? Will the client, after all costs and tax exposures, and lacking a guaranteed market, at a set price, make or lose money? How do you know? The cost to pay off the loan is the sum of premiums paid, interest accrued and any expenses capitalized into the loan. These costs are clearly spelled out in the loan documents signed by the owner, the insured and the Guarantor (if applicable) and reviewed by legal counsel for the owner. The transaction should make economic sense assuming the client has a legitimate need for the life insurance and fits our client profile. Our clients do not enter the CFC program with the intent to settle the policy. Predicting the economics of a future sale of the policy is an exercise we do not provide. Dozens of future circumstances will transpire for each client making predictions of this type unwise and not very useful. For example, could someone who bought a condominium 36 months ago on the ocean in Miami rely today on the predictions made then? Contact a Life Insurance Concepts Representative Today. Will the death benefit be included in the insured’s estate? We do not provide legal advice or tax counsel. However, we believe that, assuming the insurance is applied for and owned by an ILIT, it would seem unlikely that the death benefit would be included in the insured’s estate. Our plan requires that every client obtain separate, independent legal representation to consider issues such as this.
Contact a Life Insurance Concepts Representative Today.
We strongly suggest that clients and their advisors seek only premium financing experts that have proven track records in the premium financing industry. By doing so, risks to their reputation and personal liability should be minimized. Plans such as ours that promote complete disclosure and transparency optimize the advisor’s due diligence in safeguarding their client’s best interests. Contact a Life Insurance Concepts Representative Today. Providing a life insurance payment alternative that may be more economically sensible is the obligation of insurance professionals. Comparable to financing any other asset, insurance consumers should be aware of the growing number of options available to them. As far as being ethically comfortable, if an advisor is instrumental in assisting his client obtain life insurance to solve significant tax planning objectives utilizing approved financing programs, he should feel proud about his recommendations. Contact a Life Insurance Concepts Representative Today. The Cambridge program is not available for use with charities or any kind of charitable giving arrangements. Contact a Life Insurance Concepts Representative Today. Neither Life Insurance Concepts nor Cambridge provide tax advice and we require that every client be represented by independent legal counsel. In the event of default, it is our belief that certain amounts would be considered as debt forgiveness, creating taxable income and you should discuss this with your tax counsel. Contact a Life Insurance Concepts Representative Today. |
 
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