Traditional Premium Financing† is typically defined as a financing arrangement whereby the lender loans money to the client for the payment of premiums on a life insurance policy, and 100% of the loan balance is fully secured by one or several collateral sources. Some, but not all, of those collateral sources might include the life insurance policy's underlying Cash Surrender Value, cash and cash equivalents, and/or a Letter of Credit from the client's banking institution.
A Life Settlement is the sale of a life insurance policy in the secondary market to a life settlement provider for an amount that is more than the surrender value, but less than the full amount of the death benefit.‡
†Financing is subject to the lender's collateral and financial underwriting requirements. Financing lenders typically require additional collateral during the early years of a policy in the form of cash, cash equivalents, marketable securities, a personal guaranty or a letter of credit from a bank approved by the lender. Interests in closely held businesses and real estate are not generally acceptable collateral. Premium Financing is complex and involves many risks, such as the possibility of policy lapse, loss of collateral, interest rate and market uncertainty, and failure to re-qualify with the lender to keep the financing in place and maintain the desired level of insurance protection. In certain situations, additional out-of-pocket contributions may be required to retire the debt and/or maintain the desired level of insurance protection. A well planned exit strategy should be in place prior to accepting any financing arrangements.
‡In a Life settlement transaction the seller receives a lump sum payment from the purchaser of a life settlement--typically for more than the policy's cash surrender value but less than the net death benefit. As opposed to life insurance surrenders, they may take weeks or longer to complete.
Please note that the number of bidders for a policy may be limited; proceeds from sales of similar policies may vary and may be subject to claims of creditors. Receipt of proceeds may impact eligibility for government benefits and entitlements. Prior to sale, the insured should consider the continued need for coverage, impact to estate plans, availability of insurance, cost of comparable coverage, and tax implications. There may be high fees associated with the sale of a life settlement and your personal medical information may be disclosed to 3rd parties. Please consult an appropriate professional regarding your individual circumstances.