Legal Blog
The Weekly Scenario: Financing Life Insurance
Question: I don’t have a lot of cash for life insurance. Is there any way for me to finance the purchase?
Answer: Over the last decade, insurance agents and other advisors with their clients have tried to find various ways to borrow money to buy life insurance. The focus was mainly on clients who needed insurance for liquidity and estate taxes but did not currently have the cash for the premium payment.
The client would borrow money and use the borrowed funds to purchase life insurance. The idea was that when the client became more liquid (often times through the sale of an asset like a business or real estate) the loan would be repaid and the client would take over the premium payments from their own cash reserves.
So-called, “premium financing” has significant benefits because it allows a client to bridge a period of time when they are simply not able to pay premiums due to illiquidity constraints.
Comment: Unfortunately, some took this concept a bit to far. With ‘stranger-owned’ life insurance or STOLI, a client would pledge their life expectancy to others in exchange for a cash payment today. All of the life insurance was purchased with borrowed funds and the loan was to be repaid by selling the insurance in a life settlement. The proceeds would then be used to pay off the loan. For the most part, insurance companies consider this to be a violation of certain rules related to the insurable interest.
As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or .
ABOUT STEVE SHANE
Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.
ABOUT OFFIT KURMAN
Offit Kurman is one of the fastest-growing full-service law firms in the United States. With over 200 attorneys in 14 offices that stretch from New York to North Carolina, we represent privately-held companies and families of wealth throughout their business life cycles. Our mission is to provide our clients with “The Better Way” to grow their organizations, protect their businesses’ and families’ wealth, and resolve their most challenging legal conflicts. In addition to our quality of attorneys and breadth of legal services, Offit Kurman is distinguished by our unique operational structure, which encourages collaboration rather than internal competition. The same approach that makes our firm attractive to legal practitioners gives clients unlimited access to experienced counsel in every area of the law. Trust, Knowledge, Confidence—in a partner, that’s perfect.
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