our programs

We have several different premium financing platforms to choose from. 

Each lending package is specifically designed to optimize a specific outcome, depending on what the client's financial goals are. 

Below are descriptions of 4 different lending platforms in our portfolio to serve your client's premium financing needs...

01

Traditional

Vanilla First-Dollar

Financing

 *Borrow 100% of Premiums

 *Pay 100% of Interest Each Year

 *Pay Off Lender Around Year 16-20

 *Outside Collateral Required

02

Leveraged

Index

Arbitrage

 *Pay 1st Year Premium 

*Borrow Remaining Premiums

 *Pay 100% of Interest Each Year

*Pay Off Lender Around Year 14-16

 *No Outside Collateral Required

*Option to Reduce DB for Income

03

Partial Equity with

Responsible

Interest Accrual

 *10-15 Year Level Contribution

*Contribution = 15% of Premium

 

*Borrow 85% Of Premium

 *Accrue 100% of Interest Each Year

*Pay Off Lender Around Year 11-20

 *Outside Collateral Required

04

Omakase

Pension

Alternative

 *10-Year Level Contribution

*Algorithmic Premium Schedule

*Outlay Is Combination of Premium & Interest On Borrowed Premium

 *10-Year Fixed Borrowing Rate

 *Income Drawdowns In Year 12

 *No Outside Collateral Required

01

Traditional

Vanilla

First-Dollar Financing

(death benefit design)

 

 *Traditional Vanilla Premium Financing

 *Borrow 100% of Premiums

 *Pay 100% of Interest Each Year

 *Option to Reduce DB for Income

 *Outside Collateral Required

THE PURPOSE..

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.  One of our lenders will even allow certain types of real estate to be used as collateral (with a 50%-65% LTV requirement) and a maximum of $10MM cumulative loan amounts.

 

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.

02

Leveraged

Index

Arbitrage

(death benefit design)

 

 *Pay 1st-Year Premium Out-of-Pocket

 *Borrow Premiums Starting in Year 2

 *Pay 100% of Interest Each Year

 *Option to Reduce DB for Income

 *No Outside Collateral Needed

THE PURPOSE...

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 pays the first-year premium out-of-pocket.  Starting in year two, the client begins borrowing premiums and paying the full interest out-of-pocket.  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 execute the third-party loan payoff.

 

As long as the policy value is a minimum of 105% of the outstanding loan balance, the client does not need to sign a personal guaranty on the loan, which can be very appealing to most clients.

 

WHY IT WORKS...

There is nothing wrong with a 100% leveraged premium financing program, as we also offer two additional programs that are 100% financed (described below).  The challenge however is that often times, clients get Collateral Amnesia.  After 5, 6 or 7 years into the program, they will have forgotten about how the outside collateral requirement is calculated.  So if the policy performs less than was originally illustrated, and policy values are less that expected, there will be a greater collateral requirement.  If you’ve ever had to deliver this bad news to a client at policy anniversary, you know what I’m talking about.  Or if they have posted a securities account as collateral, and a market crash occurs, they may have to find additional sources of liquid assets to post as additional collateral.

 

What makes our our Leveraged Index Arbitrage program so client-friendly is that the collateral is posted inside the policy (in the form of first-year premium).  In most cases, it completely eliminates the need for the client to worry about collateral being a variable that needs to be managed each year.  For the advisor, it also substantially mitigates the liability of having to apologetically inform the client that they need to post additional collateral should policy values be further underwater than expected.

03

Partial Equity

with Responsible

Interest Accrual

(death benefit design)

 *Maximum Death Benefit

 *10-20 Years of Level Client Contributions

 *Not Designed for Income Drawdowns

 *Limited to Select Carriers

 *Outside Collateral Required

THE PURPOSE...

There 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, we use a 10-pay IUL wherein the client pays a fixed outlay in years 1-20 in an amount similar to the annual premium expense on a 20-year term policy. 

 

In years 1-10, approximately 10% of the actual IUL premium is paid by the client (the fixed annual budget that is equal to the 20-year term premiums).  The remaining policy premium is financed and the interest is accrued.  This is not a “free insurance program,” for the client is paying approximately 10% of the annual premium out-of-pocket via the fixed budget.

 

In years 11-20 (after the 10-pay policy premium funding has ended), the client continues to pay the same fixed annual outlay, however this outlay is used to pay down the principal loan balance.  The interest due on the principal loan balance continues to be accrued.

 

There will always be an outside collateral requirement in this program (typically for the first 8-10 years of the third party loan), and the client is required to sign a personal guaranty on the loan.  Different lenders on our platform will require different forms of collateral.  Some will require liquid collateral to be housed with them, whether such collateral be marketable securities or cash, and other lenders will take a collateral assignment against the funds that remain with another institution or surrender values of another in-force policy. 

 

Loan-To-Value (LTV) requirements will vary based on the type and source of collateral.  When solely using policy values and cash as collateral, most of our lenders will require a 90%-95% LTV.  However, one of our lenders will even allow certain types of real estate to be used as collateral (with a 50%-65% LTV requirement) and a maximum of a $10MM cumulative loan amount.

 

WHEN IT WORKS...

(because if this is designed incorrectly, this concept may NOT work)

There is certainly an element of risk in any interest accrual program due to the compounding debt.  Though we are not a fan of compound debt, there are some unique circumstances in which a PARTIAL interest accrual strategy can make sense.

 

Typically, the client needs to have a minimum net worth of $25,000,000.  Their perspective when using this type of strategy is:

1. They don’t mind the risk of potential negative interest arbitrage.

2. They have the money to pay the full interest, but would rather deploy those funds elsewhere.

3. They have the net worth to be able to pay off the third party lender at any time with outside funds.

 

We backtest this program in our proprietary software to show the client when the compounded debt becomes unsustainable by the policy values alone (especially during times of volatility and hyper-borrowing rate increases).  As long as they understand this risk, and assuming their net worth and financial situation deems this a suitable strategy, and assuming their financial advisors agree with the suitability of this strategy, we can facilitate this program.

 

We typically do NOT endorse using any interest accrual strategy for the purpose of accumulating cash value for future retirement income drawdowns, unless however it passes our stress-test using the worst 40-year period out of the 121 different 40-year periods our proprietary software models. 

 

We have backtested and stress-tested TONS of these types of programs (promoted by our competitors) within our proprietary software, and in almost every single case, the strategy falls apart when exposed to volatility.

 

In any type of interest accrual request we receive from a client or an advisor, we first backtest and stress-test the design.  Then, if we are comfortable with that specific case and that specific design, we will transparently ask for pre-approval from the carrier’s Advanced Markets team. 

 

If everyone is onboard and unanimously agrees that the program is suitable for the client, we will facilitate the lending program.

04

Omakase

Pension Alternative

(accumulation design)

 *Maximum Income Drawdowns

 *Minimum Death Benefit

 *10-Years of Level Client Contributions

 *10-Year Fixed Borrowing Rate

 *Income As Early As Year 12

 *No Outside Collateral Needed

THE PURPOSE...

The primary purpose of this program is for accumulation and future income drawdowns.  It is what we refer to as Responsible Leverage, not a free insurance or a magical income in the clouds type of program. 

 

HOW IT WORKS...

This program incorporates the simplicity of a level, fixed, annual contribution for a period of 10 years, with a third-party loan payoff in year 11.  We also have a 10-year fixed borrowing rate option as well, wherein the policy value is the sole collateral, with no additional outside collateral required.  When stress-tested in our proprietary software, typically this design would require eight 0% index credits in the first eight years  of the policy to trigger an additional outside collateral requirement.  As long as the policy has a 95% LTV, the client does not need to sign a personal guaranty on the loan, which can be very appealing to most clients.

 

WHY IT WORKS...

The client pays the first two years of policy premium out-of-pocket.  Borrowing starts in policy year three, however the premium is not 100% financed in years 3-10.  We have built an algorithm that calculates how much premium should be borrowed, and how much premium should be paid out-of-pocket by the client.  Our proprietary algorithm calculates this ratio to accommodate a fixed client outlay. 

 

For example, if the client annual outlay is $100,000 for 10 years, in years 1-2, that $100,000 pays the entire premium.  Then in year 3, some of that $100,000 annual budget will pay the interest on the newly borrowed premium, and some of that $100,000 will pay non-financed policy premium.  As time goes on, and more premium is borrowed each year, more of that $100,000 annual budget will be applied to the increasing interest (due to the increasing cumulative loan as more premiums are borrowed), and less of that $100,000 annual budget will go towards non-financed premium.

 

There is no interest accrued and no early cash value riders in the Omakase program whatsoever.

© 2021 by Lionsmark Capital, LLC

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