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 Premium financing once garnered a lot of attention for being the first insurance product to be free, as in “free life insurance”.
That moniker pretty soon garnered for premium financing the unflattering of “scam”. Many people in the beginning were skeptical about premium financing companies and, indeed, they had every reason to. In cruise ships were a lot of wealthy senior citizens could be found, representatives of premium financing companies striking deals with senior citizens and paying them to take out a large life insurance policy.
It is not known if the hawking activities are still going on, but premium financing has in recent years gained some measure of credibility, in part because premium financing companies have shied away from “free life insurance” and has begun marketing it for what it really is – a loan that needs to be paid. But the premium financing loan is very specific, and it can only be used to pay the premiums of a large life insurance policy.
There are many premium financing companies in the market today and they are not created alike. In real life, a premium financing company pays the life insurance provider the cost of the premiums of the policy. But while some premium financing companies require monthly payments on the loan, other companies simply keep the life insurance policy of the insured person and deduct the principal amount plus interest rate from the death benefit. The rest of the amount is then turned over to the beneficiaries on the policy.
While some people might rejoice at being able to take out a large life insurance policy without ever having to sell any of their assets, the interest rates for premium financing loans are nothing to rejoice about. Interest rates vary from LIBOR+1 to PRIME+2. In most cases, the beneficiaries of a $65 million life insurance policy end up only getting a fraction of the amount.
If you wish to share a personal life story involving premium financing, then do not hesitate to write to us. |