Howell & Associates Advanced Planning - Green Bay, Wisconsin

Client Profile

• High Net Worth
($5 million in the case of an individual)

• Need for a large amount of life insurance

• Insurable at favorable rates

• Sophisticated investor

• Has adequate assets to use as collateral

Premium Financing

Premium Financing is a strategy designed to help clients acquire life insurance for which they have
an established need. In its basic form, a client would obtain a life insurance policy and borrow the funds necessary to pay the premiums. The policy is generally pledged as the primary collateral on the loan. Since the policy surrender values in the early years are generally less than the premiums paid, the client will typically have to put up additional collateral. Should the insured(s) die prior to the repayment of the premium loan, the outstanding loan is repaid from the policy proceeds.


No impact to current cash flow – The client can purchase life insurance without having to impact current cash flow or liquidate existing investments (thus avoiding adverse income tax consequences at liquidation).

Positive Interest Rate Arbitrage – Premium Financing can produce positive interest rate arbitrage if the growth in policy cash value exceeds the interest charged on the underlying loan.

Gift Tax Leveraging – The client can maximize estate planning by using gift tax leveraging. If the policy is owned outside the insured’s estate, Premium Financing could eliminate the need to gift the entire premium. Only the loan interest may need to be gifted annually; however, if the loan is structured so that interest accumulates, no gifting may be necessary.


Sophisticated Strategy – Premium Financing is a highly complex strategy and involves several risks.

Potential Gift Tax Issues – If the policy is owned outside the estate and interest is paid annually via gifts to the trust, gift tax issues could arise if the loan interest exceeds the client’s annual gift tax exclusions and lifetime exemption.

Interest Rate Volatility – Fluctuations in future interest rates could have a major impact on the life insurance policy and underlying premium loan.