Life Insurance Premium Financing
Life insurance premium financing is used by wealthy individuals to pay their life insurance premiums. By financing your premiums, it allows you to free up the funds that might have otherwise been used to pay your premium. Many wealthy people require a substantial amount of life insurance for business planning, estate planning, or for income replacement.
In order to qualify for life insurance premium financing most insurance companies require you have a minimum of $2.5 million in net worth and at least a $200,000.00 a year income. In addition, you must be bankrupt remote entity, such as a Limited Liability Corporation, or an Irrevocable Life Insurance Trust.
In a normal premium financing arrangement, you would apply for a policy at the same time you apply for a loan. The loan is usually arranged by the insurance company you are working with although there are many different companies that handle only the financing and do not deal with the actual insurance policy. While you are being medically underwritten for the life insurance policy, your loan is being processed. Assuming you pass the medical exam and qualify for the loan, the policy and financing are put into place at the same time.
The benefits of a premium financing arrangement is that it frees up business and personal money to be used more efficiently in other investment arenas. In addition, life insurance premium financing may minimize gift taxes, and can provide a greater rate of return on the death benefit paid through regular non-financed methods.
Life insurance premium financing loans may be repaid either by paying a monthly payment while you are alive, pay from the policy itself, or at the time of your death, proceeds from the policy will pay off the loan.
Interest on the life insurance premium financing loan is considered to be personal interest, and therefore, not tax deductible.
If you are considering a premium financing loan for estate planning, there are some tax issues you may want to consider. The life insurance proceeds will be included in your estate if you own the policy. If the life insurance policy is owned by an irrevocable life insurance trust, estate taxes on the death benefits may be avoided.
Before you consider financing your life insurance premiums you should be aware that the life insurance policy will have to earn returns of between 150 to 300 basis points over the interest rate of the loan.
In addition, you should ask what the loan commitment fee is, as well as knowing whether the life insurance premium financing loan is renewable, how long the term of the loan is, and if the loan extends well beyond your life expectancy.
You may want to find out if the loan requires a personal guarantee, or if the loan is guaranteed by the life insurance policy.
Also, you want to know how if the program is designed on your IRS calculated life expectancy or is it conventional. If the loan is based on your life expectancy, and you live beyond that, the loan amount will exceed the cash value and the whole program will come apart.
Before entering into a financing agreement you may want to consult a trusted attorney, your financial advisor, and/or your Certified Public Accountant.
Why Early-Stage Startup Companies Should Hire a Lawyer
Many startup companies believe that they do not need a lawyer to help them with their business dealings. In the early stages, this may be true. However, as time goes on and your company grows, you will find yourself in situations where it is necessary to hire a business lawyer and begin to understand all the many benefits that come with hiring a lawyer for your legal needs.
The most straightforward approach to avoid any future legal issues is to employ a startup lawyer who is well-versed in your state’s company regulations and best practices. In addition, working with an attorney can help you better understand small company law. So, how can a startup lawyer help you in ensuring that your company’s launch runs smoothly?
They Know What’s Best for You
Lawyers that have experience with startups usually have worked in prestigious law firms, and as general counsel for significant corporations.
Their strategy creates more efficient, responsive, and, ultimately, more successful solutions – relies heavily on this high degree of broad legal and commercial knowledge.
They prioritize learning about a clients’ businesses and interests and obtaining the necessary outcomes as quickly as feasible.
Also, they provide an insider’s viewpoint and an intelligent methodology to produce agile, creative solutions for their clients, based on their many years of expertise as attorneys and experience dealing with corporations.
They Contribute to the Increase in the Value of Your Business
Startup attorneys help represent a wide range of entrepreneurs, operating companies, venture capital firms, and financiers in the education, fashion, finance, health care, internet, social media, technology, real estate, and television sectors.
They specialize in mergers and acquisitions as well as working with companies that have newly entered a market. They also can manage real estate, securities offerings, and SEC compliance, technology transactions, financing, employment, entertainment and media, and commercial contracts, among other things.
Focusing on success must include delivering the highest levels of representation in resolving the legal and business difficulties confronting clients now, tomorrow, and in the future, based on an unwavering dedication to the firm’s fundamental principles of quality, responsiveness, and business-centric service.
Wrapping Up
All in all, introducing a startup business can be overwhelming. You’re already charged with a host of responsibilities in which you’re untrained as a business owner. Legal problems are notoriously difficult to solve, and interpreting “legalese” is sometimes required. Experienced business lawyers know these complexities and can help you navigate them to avoid stumbling blocks.
Although many company owners wait until the last minute to deal with legal issues, they would benefit or profit greatly from hiring an experienced startup lawyer even before they begin. Reputable startup lawyers can give essential legal guidance, assist entrepreneurs in avoiding legal hazards, and improve their prospects of becoming a successful company.
Think Twice Before Getting Financial Advice From Your Bank
This startling figure comes from a recent review of the financial advice offered from the big four banks by the Australian Securities and Investment Commission (ASIC).
Even more startling: 10% of advice was found to leave investors in an even worse financial position.
Through a “vertically integrated business model”, Commonwealth Bank, National Australia Bank, Westpac, ANZ and AMP offer ‘in house’ financial advice, and collectively, control more than half of Australia’s financial planners.
It’s no surprise ASIC’s review found advisers at these banks favoured financial products that connected to their parent company, with 68% of client’s funds invested in ‘in house’ products as oppose to external products that may have been on the firms list.
Why the banks integrated financial advice model is flawed
It’s hard to believe the banks can keep a straight face and say they can abide by the duty for advisers to act absolutely in the best interests of a client.
Under the integrated financial advice model, there are layers of different fees including adviser fees, platform fees and investment management fees adding up to 2.5-3.5%
The typical breakdown of fees is usually as follows: an adviser charge of 0.8% to 1.1%, a platform fee of between 0.4% and 0.8%, and a managed fund fee of between 0.7% and 2.1%. These fees are not only opaque, but are sufficiently high to limit the ability of the client to quickly earn real rates of return.
Layers of fees placed into the business model used by the banks means there is not necessarily an incentive for the financial advice arm to make a profit, because the profits can be made in the upstream parts of the supply chain through the banks promoting their own products.
This business model, however, is flawed, and cannot survive in a world where people are demanding greater accountability for their investments, increased transparency in relation to fees and increased control over their investments.
It is noteworthy that the truly independent financial advisory firms in Australia that offer separately managed accounts have done everything in their power to avoid using managed funds and keep fee’s competitive.
The banks have refused to admit their integrated approach to advice is fatally flawed. When the Australian Financial Review approached the Financial Services Council (FSC), a peak body that represents the ‘for-profit’ wealth managers, for a defence if the layered fee arrangements, a spokesman said no generalisations could be made.
There are fundamental flaws in the advice model, and it will be interesting to see what the upcoming royal commission into banking will do to change some of the contentious issues surround integrated financial advice.
Many financial commentators are calling for a separation of financial advice attached to banks, with obvious bias and failure to meet the best interests of clients becoming more apparent.
Chris Brycki, CEO of Stockspot, says “investors should receive fair and unbiased financial advice from experts who will act in the best interests of their client. What Australians currently get is product pushing from salespeople who are paid by the banks.”
Brycki is calling for structural reform to fix the problems caused by the dominant market power of the banks to ensure that consumers are protected, advisers are better educated and incentives are aligned.
Stockspot’s annual research into high-fee-charging funds shows thousands of customers of banks are being recommended bank aligned investment products despite the potential of more appropriate alternatives being available.