Premium Financing Life Insurance is a strategy in which someone uses a third-party loan to pay for a large life insurance policy—usually permanent life insurance designed for estate planning, wealth transfer, business succession, charitable giving, or high-net-worth tax strategies. Instead of liquidating assets or tying up personal cash flow, the policy owner arranges financing to cover the premiums while maintaining control of their investments, businesses, or personal liquidity.

At Diversified Insurance Brokers, we help clients understand whether premium financing is appropriate, sustainable, and aligned with their goals. This strategy is not for everyone. But for the right household or business owner—particularly those with high incomes, significant net worth, and a need for large amounts of permanent life insurance—premium financing can create tax-advantaged leverage, maintain liquidity, and preserve estate value.

Because we are an independent, fiduciary-minded agency licensed in all 50 states, we walk clients through every step: stress-testing projections, evaluating policy structures, coordinating with estate attorneys and CPAs when needed, and explaining long-term expectations in plain English.

What Exactly Is Premium Financing?

Premium financing involves borrowing money—typically from a bank or specialty lender—to pay the premiums of a large life insurance policy. The policy is used as partial collateral for the loan, along with additional outside collateral until the policy accumulates enough cash value. Over time, as the policy grows, the owner may choose to repay the loan, refinance it, or use the policy’s own values (as appropriate) to resolve outstanding balances.

This strategy is generally used for:

• Estate planning for high-net-worth households
• Business succession
• Buy-sell agreements
• Key-person protection
• High-value charitable giving strategies

In many cases, premium financing allows clients to secure the amount of coverage they genuinely need—rather than the amount they can pay cash for in a single year. It also allows clients to keep investments, real estate, equity holdings, and business assets working rather than redirecting liquidity into yearly premiums.

Who Is a Good Candidate for Premium Financing?

Premium financing is not a one-size-fits-all strategy. It is appropriate only for clients who meet certain financial, cash-flow, and risk-tolerance criteria. Common characteristics of candidates include:

• $5M+ net worth (often significantly higher)
• Strong, consistent income
• A need for $3M–$20M+ of life insurance
• Interest in preserving or enhancing estate value
• Comfort with leverage and long-term planning
• Ability to post additional collateral when required

If you are unsure whether you fit these criteria, our advisors can help you evaluate the financial suitability, including cash-flow analysis, estate liquidity projections, and long-term policy performance.

How Premium Financing Works Step-by-Step

The mechanics of premium financing can appear complex, but the workflow typically follows a predictable structure:

1. Determine the Insurance Need

This strategy generally uses permanent life insurance—indexed universal life, whole life, or guaranteed universal life—depending on client goals. We determine:

• Amount of coverage needed
• Desired time horizon
• Estate, trust, or business ownership structure

2. Apply for Financing

The client applies for a premium finance loan. All discussions of lenders and terms are handled privately with the client—DIB does not reference or endorse any specific lender publicly.

3. Post Collateral

Because the policy’s cash value is initially low, the client must post outside collateral (cash or marketable securities). Over time, as the policy grows, this collateral requirement often decreases.

4. Pay Interest

The client pays interest on the premium finance loan. This is often the primary out-of-pocket cost of the strategy.

5. Loan Exit Strategy

The exit strategy is tailored for each client. Common options include:

• Repay loan using other assets or portfolio income
• Use policy values (where appropriate) to retire debt
• Keep loan in place long-term as part of the strategy

No client should enter premium financing without a clearly defined, stress-tested exit strategy. At Diversified Insurance Brokers, we model multiple scenarios—interest rate changes, policy performance variations, and market stress—to ensure long-term suitability.

Benefits of Premium Financing

Premium financing can offer powerful benefits for high-net-worth individuals and business owners:

• Preserves liquidity by avoiding large annual premiums
• Allows high coverage amounts that would otherwise be difficult to fund
• Potential tax advantages when used in trust or estate structures
• May enhance intergenerational wealth transfer
• Keeps investment portfolios intact rather than liquidating assets

When combined with high-cash-value life insurance, the long-term growth potential inside the policy can help reduce the need for outside collateral over time, depending on performance and strategy.

Risks and Considerations

Premium financing is sophisticated and involves real risks. Before considering it, clients should be aware of:

• Interest rate risk: Loan costs may rise over time.
• Collateral risk: Additional collateral may be required if policy values underperform.
• Policy performance risk: Depending on product type, values may fluctuate.
• Long-term commitment: This is not a short-term or simple strategy.

A client must be financially prepared to support the strategy even under stress scenarios. We help model those stresses using conservative assumptions—not optimistic projections.

Why Work with Diversified Insurance Brokers?

Premium financing requires careful planning, ongoing management, and independent oversight. As a second-generation, family-owned agency with more than 40 years of experience, Diversified Insurance Brokers provides:

• Independent carrier comparison across top insurers
• Objective, fiduciary-minded guidance
• In-depth financial modeling and stress-tested policy designs
• Coordination with attorneys and CPAs when appropriate
• Long-term monitoring of performance, interest rates, and collateral requirements

Our goal is simple: help clients implement premium financing only when it genuinely improves their long-term financial picture. If there is a better or simpler alternative, we present it openly.