Is life insurance premium financing right for you?

Life insurance is an essential part of an estate plan—but the premiums can be expensive. Consider a premium financing strategy that includes paying estate taxes with the proceeds from a high-value life insurance policy.

Benefits

  • Use leverage to maintain your long-term investment strategies.
  • Avoid untimely taxes from liquidating your assets to pay premiums.
  • Purchase life insurance ahead of an expected liquidity event, such as the future sale of a business or an anticipated inheritance.
Factors to consider

  • Ideal candidates should have significant unencumbered liquidity, cash flow, and net worth.
  • Life-insurance needs may include income replacement, business succession planning, debt repayment, next-generation legacy, estate liquidity, estate tax, and other settlement costs.

Life insurance premium financing FAQs

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Typically, Truist makes a premium loan to an Irrevocable Life Insurance Trust (ILIT). Then the trust pays the life insurance premiums as well as the interest payments on the loan. When the insured passes away, only the outstanding loan balance is subtracted from the death benefit. If properly structured, the trust receives the remainder free of income and estate taxes for the trust beneficiaries.

By funding your ILIT with a loan rather than direct contributions, you may limit your exposure to gift taxes, minimize the use of your lifetime gift-tax exclusion, and avoid disturbing or liquidating your investment portfolio to pay premiums.

Like all forms of secured lending, life insurance premium financing carries special risks that you should consider. For example, an increase in interest rates will increase borrowing costs and lower returns. A decrease in collateral value may limit your ability to obtain advances, or it may require you to pay down the loan or deposit additional cash or securities. If you’re unable to meet a collateral call, Truist can force the sale of securities. There’s no guarantee that Truist will renew the loan. Talk to your advisor to learn more about the risks of financing life insurance premiums.

Yes. To discuss potential tax implications and how they may apply in your situation, please contact your tax advisor.