At its simplest level, premium financing means using lender money to pay or partially pay for life insurance premiums instead of using your own cash. The concept has been in use since the 1960’s and offers many benefits.
Benefits of Using Premium Financing
Premium financing saves cash flow instead of having to use your own money to fund life insurance policies. It also avoids opportunity cost (lost earnings from a working asset which would need to be liquidated to pay for premiums). In addition, premium financing has beneficial estate planning applications which should reduce gift taxes which are triggered when paying money into the ILIT.
What is the difference between Premium Financing and NIW’s Asset Backed Insurance Lending (ABIL)?
ABIL is a variation of Premium Financing where the primary focus of the design is long-term survivability against harsh economic conditions. NIW’s believes that most premium finance will only save the client money in the short term and only if the
market conditions are normal. By contrast, NIW solutions anticipate harsh economic conditions and are designed to save money over the client’s life.