Premium Financing Quarterly value is not sufficient,” West said. “[Agents] should require premium finance interest to be paid and not accrued each year.” Whitmore said the key to a good exit strategy is a strong structure and running stressed scenarios. Agents should resist the urge some clients have to play it a little risky, such as not paying interest and just presenting AG49 crediting rates. Collateral can also be a stumbling block. “I ask the client, ‘Look, when you bought your house, did you post collateral? When you buy a car, do you post collateral? When you got into that commercial property, did you post collateral?’” Whitmore said. “So why should this be any different? By posting collateral, it allows you to finance the policy and get the insurance needed in a much more cost-effective way.” In fact, that answer demonstrates the
value of premium financing. In an example of a $200,000 annual premium, premium financing would end up saving serious money. “That money’s gone,” Whitmore said of the annual premium. “With a premium financing design, you’re out of pocket, say, $25,000 a year in interest. That’s an extra $175,000 in cash flow. What do you earn on your money? 12%? What is 12% compounded return on $175,000 a year for the next 10 years?” Whitmore explained that is the value the client is getting with the collateral — leverage. And even beyond that, the financing and the insurance work in tandem to mitigate risk. “All life insurance is doing is transferring risk, from the individual to a company,” Whitmore said. “It’s also leverage. I pay $100,000, I get a $2 million death benefit. Premium financing is another leverage. Instead of paying the $100,000, I’m having someone else do it. And I’m only paying $5,000. It’s another lever up.”
“By posting collateral, it allows you to finance the policy and get the insurance needed in a much more cost-effective way.”
6 February 2020
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