CAUTIONARY TALES ABOUT LIFE INSURANCE PREMIUM FINANCING
Life insurance consultant Bill Boersma has identified some of the major pitfalls of life insurance premium financing in an article in wealthmanagement.com. Brokers and advisers who propose such an arrangement to their clients would be wise to heed his advice.
Here are some of the troublespots he identifies:
The spread should be between the borrowing rate and the time value of money, not the borrowing rate and the life insurance crediting rate.
A whole life policy’s dividend rate is a poor standard of measure, because charges and expenses make the effective crediting rate relative to premium much lower.
The volatility of LIBOR rates makes it very hard to assume the premiums can always be financed with a low interest rate.