Policy values
Once cash value exceeds the loan, a withdrawal or policy loan repays the lender.
Life insurance premium finance
Fund a large policy without liquidating what you have built
Premium finance uses a third-party bank loan to pay life insurance premiums. Clients keep capital in their businesses and portfolios, and the policy becomes the main collateral for the loan.
Why clients finance
Liquidity stays where it earns the most
Premium finance has served buyers of life insurance for more than a century. It works for clients whose assets earn more than the cost of borrowing, or who would otherwise sell assets and realize gains to pay premiums.
- Keep investments invested. Avoid selling securities, real estate or business interests to fund premiums.
- Avoid gift tax pressure. Paying interest instead of full premiums can reduce the gifts needed to fund a trust.
- Fund coverage in years, not decades. Many designs fund the policy over seven to ten years.
- Size coverage to the estate. Death benefits large enough for estate liquidity, without a matching cash outlay.
The structure
Who owns, who borrows, who holds the collateral
An irrevocable life insurance trust (ILIT) or an LLC owns the policy and borrows the premium. The lender takes a collateral assignment of the policy and, while cash value is below the loan balance, additional collateral from the borrower or guarantor.
How a case moves
From first conversation to funded policy
Discovery
Net worth, liquidity, goals, existing coverage and the advisors involved. We confirm whether financing fits before modeling anything.
Design & stress test
Carrier and product selection, funding schedule, loan projections at current and stressed rates, collateral forecast and exit plan.
Underwriting
Medical and financial underwriting with the carrier. In parallel, the lender reviews tax returns, statements and third-party financials.
Closing & review
Loan documents, trust or LLC funding, premium payment and collateral assignment. Then an annual review of rate, values and collateral.
Collateral
What borrowers typically post
In early years the policy's cash surrender value is usually less than the loan. The difference, the collateral shortfall, is covered by the borrower.
| Collateral | Advantages | Considerations |
|---|---|---|
| Cash | Liquid, simple to post, usually the lowest cost | Opportunity cost; must be secured by the lender |
| Marketable securities | Assets stay invested | Lenders apply a haircut to value; market moves can trigger more collateral |
| Treasuries | Liquid and government backed | Opportunity cost; must be secured by the lender |
| Letter of credit | Keeps cash and securities free | Annual LOC fees; can be harder to obtain |
Risks, stated plainly
What can go wrong, and how we plan for it
Every financed case we present includes these risks in writing, with numbers.
- Rising interest rates. When the loan rate exceeds the policy's crediting rate, the loan grows faster than the cash value.
- Renewal and duration mismatch. A one-to-five-year loan financing a ten-year funding plan has to be renewed or refinanced.
- Lower policy performance. Indexed and variable policies can credit less than illustrated, increasing collateral needs.
- Collateral calls. Borrowers must be able to post more collateral if values fall short of the loan.
- Carrier and lender changes. Ratings, product changes and lender appetite can shift over a long plan.
Exit strategies
Every loan has a planned way out
Outside assets
The borrower repays from personal or business liquidity, often at a liquidity event.
Death benefit
If the insured dies during the loan, the lender is repaid from the death benefit under its assignment.
Refinance
Move to a new lender or structure when rates or terms improve.
Questions
Premium finance FAQ
Who is a good candidate?
Clients with substantial net worth, a permanent coverage need and assets that can support collateral. Lenders set their own minimums for net worth and liquidity, and we confirm fit before any design work.
Is Oak the lender?
No. Oak designs the plan and arranges financing with established banks. Each bank underwrites and documents its own loan.
What kinds of policies are financed?
Usually indexed universal life, whole life or guaranteed universal life from highly rated carriers. Product choice depends on the goal, the exit plan and how much performance risk the client accepts.
How long does a case take?
Most cases take eight to sixteen weeks, depending on medical underwriting, trust formation and lender approval.
What happens if rates rise?
Interest costs increase, and the plan may need more collateral or an earlier exit. We model higher-rate scenarios before the case is placed and review them every year.
Illustrations of policy values are not guaranteed. Indexed universal life does not participate directly in any stock or equity investment. Premium financing is not suitable for everyone and involves interest rate, collateral and policy performance risk. Loans are subject to lender approval. Oak Insurance Group does not provide tax or legal advice.