Premium Financing Quarterly some agents promoted no out of pocket for Matching Products With the client. You’re rolling up the interest,” Risk Profiles said Whitmore. “It’s a bad strategy. There’s Once a client’s objectives are identified, it no free lunch in this world.” is time to find the policy that aligns with Most insurers will not even approve polthose goals. icies where clients are rolling up interest, The type of life insurance product that’s Whitmore added. best must align with a client’s goals and “They won’t because there’s too much appetite for risk. A client in real estate, risk involved,” Whitmore said. “Now, for example, is probably comfortable with if the policy doesn’t perform, you have leverage. But someone who built a busia huge loan that’s comness by eschewing debt pounding, getting bigger might want a policy that “At the end of the every year.” requires more skin in the day, you need to Although capitalization game. of interest would comStrategy for insurance make sure that pound the risk for clients, products and their financyou’re designing premium financing has its can accommodate the policy correctly ing own inherent risks that those preferences. and using the clients need to underWhole life, for example, right product with stand. tends to grow a policy’s For example, interest cash value slowly — so the right carrier rates will eventually rise, based on the client’s slowly, in fact, that there and the decade-plus equimight not be enough cash objectives.” ty bull market will evenvalue to pay off the loan. tually reverse. Would preOn other hand, it’s got a mium-financed insurance still make sense steady rate and won’t fluctuate much, even for your clients then? during market downturns. That is where modeling comes in, said Indexed universal life (IUL) products, howWest of Prudential. “Agents can show sceever, have the potential for more growth. Part narios where interest rates increase and/or of the policy is tied to an index, such as the rates of return on the policy decrease, so Standard & Poor’s 500. The policy can benefit they can see the impact,” he said. from the index’s upside — up to a ceiling — Whitmore agreed about the importance but protects on the downside with a floor. of the scenario modeling. He advocates Naturally, both types of policies have showing a range of illustrations, especially their adherents. showing when the policy underperforms “I think the IUL is the better product for a few years. That dip is more likely to because you can get the arbitrage over the occur than is a rapid interest rate rise or cost of money,” Hammer said. equities market collapse in the next 10 years, Whitmore said. Even two years of Have An Exit Strategy underperformance can require the client With any policy, clients need a clear underto put up more collateral. standing of how their premium financing “At the end of the day,” Whitmore said, loan will be paid off, said West. “you need to make sure that you’re design“Prior to sale, financial professionals ing the policy correctly and using the right should discuss a premium finance exit product with the right carrier based on the strategy, including an exit strategy alternaclient’s objectives.” tive using outside funds if the policy cash
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