Thought I should add my 2 cents worth since I have quite a bit of experience in this field.
This is how it works: Let's assume you found a 70 year old man named "Joe" who want's to proceed with this arrangement. Let's also assume we've established Joe can financially qualify for $2mm worth of coverage. You will collect information from Joe on an INFORMAL application. An informal application is a one page fact finder on the history of Joe. Information will include D.O.B, Soc Sec#, Drivers Lic#, Name, Address and Phone Numbers of Doctors, any prescription meds being taken, etc. Joe will also need to sign a HIPPA form.
Medical records of Joe will be pulled and sent to 5 - 6 Life Carriers. The carriers are all "A" rated or better. In fact, they have to be or the lending institutions will not fund the policy.
The carriers will review the Medical Records and either make an INFORMAL offer for insurance or decline coverage all together. In our case let's assume ACME life insurance company offers Joe a "standard" rate class and the premiums are 100k per year.
At that point ACME will run illustrations of scheduled premiums. Those illustrations will be sent to 5 - 10 "Funders" or lending institutions. Those "funders" will order three Life Expectancy (LE) reports to be conducted on Joe.
The "funders" will analyze the LE reports, Premium, and Death Benefit and decide if they want to loan the premiums base on the numbers. Let's now assume we have a "yes" from one of the funders. At this point Joe will have to get a Medical exam and go through the FORMAL application process.
Once this is completed a Trust is created. The Trust owns the Life Insurance Policy, and Joe owns the Trust. Joe designates his own beneficiaries as he would with any Trust. A collateral assignment is put on the policy by the lending institution, so that they will be paid back upon the death of Joe.
If Joe dies in the first two years, his benes will receive the death benefit minus what the lending institution is owed. If not, when the two years is up, he can pay back the lending institution and make future premium payments. He can sell the policy (Life Settlement) or, if it can't be sold, the lending institution will now be the owner and beneficiary of the policy, and Joe will be completely out of the picture.
I should note a couple of things: 1) The lending institutions will generally take 50% of the commission right off the bat. 2) The Life Carriers that participate in this take the "don't ask, don't tell" approach. They won't ever publicly say "We want this business", but they aren't putting the question "Is this policy being financed?" on the application either.
Hopefully this clears up some questions regarding this concept. This can be a wonderful Estate Planning tool if properly designed. It can also be a total disaster if structured improperly.
Be careful when proceeding with these arrangements. You really need to know what you're doing.
PM me if you want more information.
This is about as perfect of an explanation I've read.
The funders that I work with only need two LE.
Also, if the criteria works (71 years of age, and 1MM UL policy & up) then they will fund it- They won't take 50% but more like 30-35% commission up front and zero on the back end when it's sold 2+years later.
I listened to the conference call that this thread was about. They talked about the commission being $10K per $1mm. Nice, but I believe it much better with different groups...Perhaps 70% of target premium....
This is about as perfect of an explanation I've read.
The funders that I work with only need two LE.
Also, if the criteria works (71 years of age, and 1MM UL policy & up) then they will fund it- They won't take 50% but more like 30-35% commission up front and zero on the back end when it's sold 2+years later.
I listened to the conference call that this thread was about. They talked about the commission being $10K per $1mm. Nice, but I believe it much better with different groups...Perhaps 70% of target premium....
This process gives life settlements the bad name most of you associate it with. Pending legislation will soon put this process out of business. They are trying to make it to where you have to keep a premium financed policy for 5 years before doing a settlement instead of 2. Also there is a process where you can cut the finance company out directly. There are funders taht will purchase certain policies the day they are inforced. The senior usually received 2-5% of face value for this.
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I try to educate people on this board about how this process works, and all the sudden I'm the bad guy. I'm matching wits about a Life Insurance process that I'm involved with on a daily basis with someone named "healthagent". Oh well, I tried.
By the way, UL policies pay a residual as well.
People are people, if they don't want to understand they will not. I don't know a carrier that will not except a informal app and health records to give you a idea of what will happen when a "real" app is sent in.
Hi All,
I am new to this forum and I was just browsing through some topics. Thought I would add to this one that the forum is so informative. Many of the posts are informative and funny at the same time. I like it here. I will be back.
Any updates on this topic? Healthagent - did you do the 60 minutes thing? I must say that it sounds interesting and worth a shot (minus the whole sounds too good to be true thing) - unless there is a potential downside to the client. I would think that the non recourse loan would prevent this making the only downside the fact that how much insurance they can purchase before the policy is sold would be affected.
I would consider using it as a way to bolster charitable giving - i think this would eliminate the likelihood of negative tax issues. But I would like to speak with someone who has been through the process.
I would consider using it as a way to bolster charitable giving - i think this would eliminate the likelihood of negative tax issues. But I would like to speak with someone who has been through the process.
I run a premium financed charitable giving program. If you would like the literature on it, send me a PM. Once a charity understands the process, they love the idea!
After wading through this thread, I had to go ahead and respond.
I don't think I've ever seen a thread where people were posting at cross-purposes to the extent seen here. Sometimes it's easier for someone new to just read through and get the picture. There are two issues: 1) a "come-on" that is probably a scam, and 2) premium financed life insurance which in itself is not a scam.
The fact that the "come-on" is based on something legitimate is where people are talking at cross purposes. Kind of like "Make a million per year working from your home in real estate" is a scam, but that doesn't make real estate itself a scam.
Anyway, I started to read this thread because I have a particular question about a premium financed case that I have going on, but I'll save it for a new topic.
That's a well thought out and intelligent first post - which is heavily discouraged here. If you continue to make sense you'll be subject to being banned.
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Vaughn siller is absolutely correct in al his posts. i cannot believe all of the people who are in the business, aND DONT know of this strategy., even people who claim they are advisors. there are a lot of people out there who qualify for this., they are not a sale that occurs every day, but when they do they are a home run.the secret is to always be working on the pipeline.
Wow...ok so I read through all 9 pages of post. There seems to be much confusion as to what these programs are and how they work (with a few exceptions). I work for a BGA (brokerage General agency) which has actually been mentioned twice on this thread already. I am not an agent...it is my job to advise, train and help agents with there cases.
The program you are referring to is what they call STOLI (Stranger Owned Life Insurance). They use this term because the insured intends from the beginning to sell the policy in 2 year (after the contestability period). That is why they are only 2-3 year loans. So the first question to answer is why is it bad? or Is it bad and if so why?
Inherently the idea of using life insurance as an asset is not necessarily a bad idea. The issue arises when you borrow money to purchase life insurance that you don’t intend on keeping. I know some people bring up the whole attrition issue with life insurance companies, but that is really a misconception. Yes insurance companies have a number for lapsed policies they calculate each year and yes they do play a role in there pricing. But let’s think about it logically...how many 80 year olds buying 10mm policies with $250k premiums per year will let their policies lapse. These policies are typically bought for estate planning reason or business succession planning. The attraction is more centered around 25-30 y/o buying 20 year term policies. The real reason STOLI is bad is because there is a question about insurable interest when the policy is written. If the insured plans on selling the policy from day one then the insurable interest must lie with the person buying the policy (in most cases a large Hedge fund). If the insurable interest laws are violated then there is a chance that the government will remove the tax advantages of life insurance which no one wants. The other reason that STOLI can be bad is that it can eat up the insurance capacity of the insured which could be bad (this is also the issue with some life settlements).
There are NO carriers that knowingly accept STOLI business…let me repeat that there are NO carriers that approve of this business period. This brings us to the next problem. If the carriers don’t approve the program then they are either looking the other way (some where in the past but not now). I have not yet run across a carrier that does had a separate form just for premium financing cases. If that form is filled out honestly the carrier will not approve the app. IF the client lies on the form then it is considered fraud which does not have a contestability period.
Premium financing in its self in not bad. Life settlements in its self is not bad. Hybrid and traditional premium financing programs where there is little to no money out of pocket to the client are not in themselves bad. But if you can not tell the carrier what is going on then something is wrong. You should only work with programs that have been approved by the carrier. Just look at Ohio, who recently past a law saying that you can not sell you policy for 5 years. Already this program is illegal in the state of Ohio.
Also informal applications are used all the time and are in now way illegal. We pull APSs for our agents clients on a daily basis. And as for commissions $10,000 commission for a premium financed case is very very small. The target premium for premium financing starts at around $100k. As for the $78 contracting fee it sounds like a marketing ploy to add credibility to the program.
The cases i do are not with the intention to cash out in 2-3 years. these plans are for high net worth people who earn to much to participate in iras or sep iras. they are in the plans for 20-30 years, htey are in them to protect there bus from such things as lawsuits, and also to provide a tax free income at retirement. someone without large net worth are not going to participate in premium financed policies.your largest life insurance companies will assist you in these sales and also have their approved vendors for admiistration and financing.
Funny thread. As a National Director of a true premium financing company and formerly in charge of premium financing for a top 5 carrier I know a little about tradition, STOLI, IOLI etc. Funny how so many people talk about and misrepresent premium financing and give it a bad name. It is one of the most misunderstood and missold concepts out there. Of course after "vanishing premiums", 412i, section 79 and the list goes on.
Okay, so was that a spam post or what? I'm not certain whether any value was added. nor humor, which sometimes runs a close second to good information.
Are you agreeing with what was said? I'm not certain anyone actually said that Premium Financing was bad. What I know people have objected to is STOLI/IOLI and wet paper sales.
Spam? I am who I say and many people discuss STOLI/IOLI, 2 and flip, whatever they call it and unfortunately that is what "premium financing" has become know as. Traditional recourse premium financing is nothing like it. All of our clients are long term holds for estate planning can afford to "write the check" but choose not to. Why? Why should they when they can borrow the money from a third party? If they earn 10% in their business why not borrow funds at 6% to pay premium?
Also, someone mentioned targets earlier. In my experience targets average about $500k and some get well above seven figures.
Re: premium financed life insurance
Maybe it comes from moderating a forum on blogging. As a blogger, you can imagine...
Re: Premium Financed Life Insurance
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