Replacing your term life policy with a permanent cash value policy

Replacing your term life policy with a permanent cash value policy

September 17, 2020

One disadvantage of owning a term life insurance policy is that it is not a permanent life insurance policy, nor does it have any cash value. Once the term is up you would have to renew or purchase a new policy with a higher premium since you are now older than when you first purchased the policy.

Though there is a way to replace your current term policy with a permanent cash value policy and still pay around the same premium that you are currently paying for the same death benefit or higher.

If you’re 45-years old or older with a 2 million to 5-million-dollar death benefit or higher term policy and you have a net- worth of 2 to 5 million then you can take advantage of the low-interest rate environment, we’re currently in.

The concept is called premium financing which traditionally is used for much higher net-worth individuals for much larger face amounts or death benefits in estate planning.

The concept uses leverage, or you could say other people’s money (OPM) to finance the premiums on a permanent life policy using a lending institution like a bank just like you would for a mortgage. By using this method, you only pay the interest since the bank is paying the premiums on the policy.

You can maintain the same death benefit that you had on your term policy while paying around the same premium on a permanent cash value policy. The cash value is linked to an index where gains are locked in annually.  

Also, since the premiums were financed in such a low-interest rate environment if the index performs at a higher rate then you have what is called an arbitrage.  

This concept should only be done by qualified advisors who specialize in premium financing. Contact my office for more information.