Uncovering a Hidden Asset

Aventura News Jul.29-Aug.4 2009
By Jon Kidd and Keith Owen

Imagine you were informed that, thanks to a close relative, you had inherited millions of dollars worth of Coca Cola stock certificates that had been lost in the attic for decades.  Since this “negotiable instrument” belongs to you, would you climb up into the attic to get it and immediately enquire as to its value?

Forgotten or unrealized assets are surprisingly more common than people think.  Many families have not liquidated their bonds or stock certificates due to a lack of communication from generation to generation.  Life insurance premium financing creates a very similar scenario by tapping into an unrealized asset we call “insurable net worth”.  A life insurance policy is an asset just like a house or car.  You may qualify for a loan that pays the annual premiums, just like a mortgage or car loan, except the interest and payments may be accrued into the loan.  Interestingly, the policy value itself typically repays the loan for those of age 70 and over.

5 Common Questions

1. What if I already have an estate plan in place?
Life insurance can supplement any existing estate plan.  Most people are unaware of how life insurance premium financing benefits estate or charitable planning.  It is recommended that individuals consult with their tax attorneys; gift taxes might be avoided with premium financing versus paying premiums outright.

2. What if I already have life insurance?
Very rarely is an individual insured up to their net worth or full capacity.  Many people do not realize the need for that much insurance.  If the hidden asset (one’s insurability) exists, why not benefit from it?  Further, many consumers are unaware that they have the option of exploring a sale of this policy in their lifetime to enjoy a “living benefit”.  It is important to note that most insurance carriers do not condone originating new life insurance policies for the sole purpose of selling it for a financial gain as an investment.

Another common purpose of life insurance premium financing is for a corporate key person or to fund a “buy-sell agreement”.  Today, people often consider a 1035 exchange and/or to sell a policy to ultimately enjoy lower premiums due to the new mortality tables; the 2008 Valuation Basic Tables (VBT) adjustment has resulted in lower premiums due to longer life expectancies.

3. I have heard of premium financing before, how do I choose the most specialized firm?
Individuals should feel comfortable dealing with a specialized firm that focuses solely on premium financing; seek a practice that works with top CPAs, estate and tax attorneys among agents and advisors throughout the country referring clients to them.  Premium loans should always be fully disclosed, transparent, safe and compliant and therefore be accepted by regulators, insurance companies and all other parties involved.  A specialized firm will ensure that an individual is in a life insurance transaction that matches their needs.  Choosing an experienced firm is important because insurance companies and regulators frown upon certain transactions that take place within the industry.

4. What if you have bad health?
You may be pleasantly surprised that you are likely to be insurable provided you do not have a terminal illness.  An insured could be classified as a standard health risk, even if.  There are advantages to be gained by working with a firm that has developed very strong relationships with underwriters and insurance companies over the years and as a result, can leverage this to bring a client a better insurance rating.

5. This sounds too good to be true, why is everybody not doing this?
More than likely, they have not yet been made aware of it.  It is also human nature to ignore death and unfortunately, this often results in harsh financial consequences.  Each person has a limit to the amount of life insurance they may qualify for, usually based on their estimated estate tax liability, business interest or charitable involvement; they may, or may not, qualify for life insurance premium financing at a later date.  This is not “something for nothing” or “free insurance”, as the premiums are paid for and an insured person is expending their insurable capacity.  Not everybody qualifies and clients should understand the risks and rewards relative to this or any product that proposes to enhance the family’s net worth.

Jon Kidd or Keith Owen may be reached via phone at 305-695-8052 or toll-free at 800-828-ESTATE (3782).  You may also wish to visit www.BanyanLife.com or simply stop by for a tea or coffee at their office on the edge of the bay at 1800 Sunset Harbour Drive, Marina Suite 3, Miami Beach, FL 33139.

This entry was posted on Monday, August 31st, 2009 at 4:13 pm and is filed under Life Insurance Premium Financing. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.