Non-recourse Premium Financing Strategy

Nov 1, 2016

  1. Brian Anderson

    Brian Anderson Executive Editor

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  2. NathanielA

    NathanielA New Member

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    I assume, peradventure, that you are referring to Viatical Settlements? If not, I'm not sure exactly what you mean by:

    "...non-recourse premium financing for in-force policies."

    As all "traditional financing" usually means a loan, and usually secured by either "good credit" or by indenturing something of value, and additionally either paying current interest or by having some arrangement where interest accrues for some time period and then comes due at some point...

    And further, I'm having trouble wrapping my head around the "non-recourse" part, wherein my poor brain can't think of being able to borrow against an asset, or against a future stream of cash flows, without pledging them as collateral for a loan and eventually having to pay both the principal and accrued interest??

    Perhaps you might be a little more specific as to what you mean by:

    "non-recourse premium financing for in-force policies"

    I would be most appreciative.

    A puzzled CLU, ChFC
  3. LostDollar

    LostDollar Guru

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    It would appear there are some risks in both personal finances and the ability obtain additional insurance later if needed: Recourse and Investor Interest.pdf


    There is a lot I do not understand about life insurance and finance, so I may be missing some things here, but I am also not sure the article is consistent in its approach from beginning to end.

    It seems to me to start by discussing insurance coverage on a life and life circumstances creating situations in which it is no longer possible to maintain that insurance (risk?) coverage due to a combination of market financial variables affecting the financial life of the covered person.

    It then transitions to a conclusion in which a wealthy individual borrows money against a high dollar policy and uses the money for investment purposes. This seems to me to be a situation in which maintaining insurance coverage is not necessarily a desired objective. It seems to me the writer of the article may be promoting some kind of an investment fund generation scheme which will provide interest returns into a marketplace he is involved with in some way or another.

    It is one thing to have someone else holding a small policy on your life to cover burial expense. It is quite another (IMO) to allow someone to be holding big dollar life coverage on your life for other reasons.
  4. johntrice

    johntrice Expert

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    Having been on both sides of the life plan, premium finance and life settlement, I think that this type of financing of the premium would be an excellent idea particularly for certain clients.

    Examples would be:

    1. A client who had a temporary downturn in income but needed the life policy for outstanding debt, estate taxes or wealth transfer.

    2. A client with a loss in income that needed the policy to protect a spouse or family member.

    3. A client with a serous but not life ending disease which is negatively impacting their financial situation.

    Unlike a settlement, which transfers ownership and benefits of the policy forever, a financing method of paying premiums would help the owner keep the benefits of the policy. The reason that such financing would be "non-recourse" would be that target for this plan are clients with financial issues, so collateral might not be available. Plus, at death the policy benefits are shared with the lender first, then the beneficiary by contract.