Life insurance can be used and paid for in a wide variety of ways, making it one of the most versatile forms of insurance on the market today.
Those seeking a high net worth policy for personal or (more usually) business purposes often rely on a strategy called “business equity finance” to make financing a high-end life insurance policy easier and more convenient.
If you are looking for a creative way to finance high-level life insurance, read on to learn about what premium financing exactly is, how it works, and its major benefits!
What Exactly Is “Business Equity Finance?”
Business equity finance is a way to finance paying the monthly premiums on a life insurance policy. Business equity financing means allowing a bank or lending institution to pay the premiums and hold the policy as collateral. Paying interest only, saves depleting the business of capital or cash needed in other areas of the business.
Every premium financing arrangement is a bit different, and you can fully customize your policy. The basic set-up is as discussed briefly above and in greater depth just below.
How Does Business Equity Finance Work?
In general, business equity financing for asset based life works like this. You talk to your financial or insurance broker, usually in a face-to-face meeting. A basic policy is put forward, and then you indicate in what ways you might want to adjust it. The agent will give you all of the relevant data so you can make informed decisions in formulating your personalized policy.
Several scenarios are then run, and you choose one. There will be some form of underwriting as required and a loan agreement reached with a third-party lender. We have available a list of banks and lending institutions that will work with you for your business equity life insurance transaction. Your policy is then officially issued and approved by all involved.
You may need to provide some collateral. Various methods are accepted by different lenders such as bank or investment accounts, stocks, bonds, and other securities, the cash value of another insurance policy, letters of credit, or simply the cash surrender value of the policy you are taking out.
(Note that the accrued cash value of the policy is often all or a large portion of the collateral required with premium financing.)
The lender is then paid back by the high-value asset life insurance at a future date. The policy used as collateral is released and the policy continues to grow with an opportunity for the business owner to receive a tax-free income.
The 5 Major Benefits Of Business Equity Financing
There are many potential benefits to this particular financial strategy, including:
1. Tax-free income
2. Immediate death benefit
3. Business succession
4. Buy-sell arrangements
5. Key-person financing and retention
Business Equity Financing Can Assist With Estate Planning – Estate planning and protection is yet another benefit of premium financing. There are significant tax benefits to it depending on how you structure the loan and repayment process. It can certainly free up funds to invest in retirement and estate planning strategies elsewhere.
To learn more about Business Equity Finance and how an asset-based life policy can benefit you, contact Flagler Financial/Flagler County Insurance Agency today and speak with an experienced financial planner!
