Interest Accrual

Premium Financing


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.



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.


(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.


Watch the video below where we walk through a case study using this platform...

For more information about each of these premium financing platforms, click on the links below:




 *Borrow 100% of Premiums

 *Pay 100% of Interest Each Year

 *Pay Off Lender Around Year 16-20

 *Outside Collateral Required



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



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



Pension Alternative

 *10-Year Level Contribution

*Algorithmic Premium Schedule

*Outlay Is Combination of Premium & Interest On Borrowed Premium

 *10-Year Fixed Borrowing Rate

*Payoff Lender in Year 11


*Income Drawdowns In Year 12

 *No Outside Collateral Required