Premium Financing
Because of our strategic partnership with NIW Companies, Inc. we can now offer all of the premium financing strategies they design. Kai-Zen is just one of the many strategies developed by NIW Companies, Inc. that helps you maintain your current lifestyle in the event of a chronic illness, premature death, or an inability to sufficiently save for retirement. Protecting your earnings is critical to insuring your ability to save for retirement.
Most premium financing strategies are only available for high net-worth individuals with a net-worth of 5 mm or higher. The Kai-Zen strategy is available for individuals earning 150k a year or higher giving them the same advantage high net-worth individuals have been benefiting from for years.
Due to limitations, traditional retirement plans are typically insufficient for high-income earners. If you want to maintain your lifestyle in retirement, you need a proactive strategy that puts more money toward protecting your future income without putting a drain on your current finances.
Kai-Zen is the ONLY strategy that uses leverage to help you acquire more benefits you need to financially protect you and your family. It’s unique fusion of financing and life insurance offers you more protections and the potential to earn more retirement than you could obtain without leverage.
How it Works
The Kai-Zen strategy is simple. Premiums are jointly funded by bank financing and the participant or employer. The bank financing provides the majority of the total contribution to the plan, and the life insurance policy itself is the full security for the loan. This strategy is specifically designed so that the participant is not required to go through financial underwriting or sign loan documents. As an additional protection, Kai-Zen’s structure is also set up protect your benefits in the event of employer bankruptcy.
By using bank financing, the Kai-Zen strategy allows you to realize benefits beyond your expectations while keeping contributions within your means.
The most unique and compelling aspect of the Kai-Zen strategy is that the participant’s contributions are leveraged 3 to 1.
“Premium Financing involves the lending of funds to a person or company to cover the cost of an insurance premium.”
This concept is not much different than using a bank mortgage to leverage assets to purchase a home. Money is borrowed to buy more house (or with premium financing access to more benefits) than one could purchase with assets on hand.
The biggest difference between these examples is that your contribution has the potential to earn interest based on market index performance with a level of protection against losses due to negative index performance and uses the policy’s cash value as the sole collateral.
Premium financing is one way to preserve cash reserves and only pay the interest on the money being financed verses the whole premium and still get the full benefit of the policy needed. Business owners or high net worth individuals use premium financing as a way to leverage a needed death benefit.
It’s no different from any other type of borrowing. Premium financing allows very wealthy people whose assets are illiquid to borrow at a rate close to the Libor (London Inter-bank Offered Rate).
While interest rates have been low are more likely to rise in the future. If you're financing the premium of a indexed universal life (IUL) policy at a low interest rate and the cash value is linked to an index that does better than the interest rate being charged then you have whats called an arbitrage situation.
Top Reasons to Finance Life Insurance Premiums
Leverage– Most self-made millionaires are comfortable leveraging their assets and have used that to create wealth. Premium finance permits clients to leverage their current assets and the policy’s cash surrender value to obtain the coverage they need.
Tax Savings– By paying interest instead of premiums and structuring ownership of the life insurance properly, clients can minimize gift and estate taxes. Premium financing can help clients use more of their annual gifting exclusions rather than tapping prematurely into lifetime exemptions.
Retained Capital – Many high net worth clients earn double-digit returns on their investments, be it in their business, real estate or investments. Premium finance allows those clients to keep their money working for them in those high returning asset classes.
Increased IRR – Utilizing premium finance reduces client outlay in the early year’s thereby increasing long term IRR.
The Ideal Client
Net worth of $5,000,000 or more
Insurable at Standard or better, with no table ratings
Client who understands leverage
Estate planning, charitable planning & tax free cash
Chamberlin Financials Role
1. Case Discussion:
We will work with the client to understand the client’s primary insurance needs. We have a dedicated and experienced team that will peak in person or over the phone.
2. Case Design:
We have many relationships with well-established lenders, which helps position us to arrange loans on behalf of our clients at rates below competitors. Our business support and analyst team utilize an innovative strategy, which we customize for every clients specifically.
3. Case Submission/Reviews:
We will review any request and answer any questions for the client before submission. Upon providing necessary documents, we will prepare annual reviews and case management.
Required Documents
The insuring company will typically request the following documentation for vetting purposes on a premium finance case:
Cover letter explaining case
Client profile checklist: name, age, net worth, asset breakdown, annual income, insurance purpose, exit strategy, design considerations, lending arrangement, letter of credit
Paper application and all appropriate state forms
2 years tax returns
CPA or Tax Attorney certified net worth statement with supporting financial statements
Product illustration
Finance Spreadsheet
Bank/brokerage statements- Typically 3 months
Acceptable Collateral
In most instances, a lender may require collateral in addition to the life insurance. In these instances, only liquid collateral will be accepted and can be liquidated at any time without consequences to the borrower, if the borrower is in default.
Acceptable Collateral may be:
A letter of credit from a bank approved by Lender
A Certificate of Deposit or Money Markets
An insurance policy
Cash equivalents
Marketable securities (valued at lenders discretion)