The are two primary uses of this program:
1. To provide income replacement to the spouse of the insured upon the insured’s death.
2. To provide the funds needed by Generation II to pay the estate taxes due upon Generation I’s death.
HOW IT WORKS:
In this program, the client begins borrowing premiums and paying the full interest out-of-pocket starting in year one. Interest is paid each year until the third-party loan is paid off, typically in policy year 16. If it is death benefit-focused, we will typically use a withdrawal under basis to executed the third-party loan payoff.
There will always be an outside collateral requirement in this program, and the client is required to sign a personal guaranty on the loan. Different lenders on our platform (we currently have 14) will require different forms of collateral. Some will require collateral to be housed with them, whether they be marketable securities or cash, and other lenders will take a collateral assignment against the funds that remain with another institution. Loan-To-Value (LTV) requirements will vary based on the type and source of collateral.
WHY IT WORKS:
For clients that want to maximize leverage, as long as they don’t mind the collateral requirement being a variable (and an annual moving target), our First-Dollar Financing program is great. If they have in-force Whole Life or IUL policies with substantial cash value, they may potentially use these policy values as collateral as well.
If you are jointly working with an AUM advisor, they will undoubtedly like the stickiness this program creates if you are using their AUM account as collateral because it freezes the portability of the account, ensuring that the client doesn’t liquidate prior to the third-party loan payoff.
Watch the video below where we walk through a case study using this platform...