Premium Financing

Premium financing is a strategy where a third-party lender funds the premiums on a high-value life insurance policy, allowing the client to preserve their capital and avoid liquidating assets. The client pays loan interest annually and repays the loan later, typically using policy cash values or other assets. This strategy combines wealth protection, tax efficiency, and leverage into a powerful planning tool.

Premium finance is very attractive for healthy insureds between the age of 25-55, but arrangements can be successfully designed for clients up to insurance age 70. There are many options to consider when designing and implementing a financed life insurance policy.

Why It Matters for Business Owners

At BH Capital Funding, we serve high-income professionals, business owners, and estate planning clients who value liquidity and long-term financial control. Premium financing helps our clients:

• Fund Buy-Sell Agreements - Without draining company profits
• Secure Estate Liquidity - Without using up gift exclusions
• Protect Business Continuity - While preserving working capital
• Avoid Capital Gains - By not selling appreciated assets

This approach is especially suited for those earning strong returns in their business or investments and who want their dollars working harder.

Who Qualifies?

BH Capital works with clients who meet the following criteria:

• Net worth: $5 million+ (or $2.5M for clients under age 50)
• Income: $150,000+ annually (or $250K for younger clients)
• Ages 25–70, with standard or better health class
• Demonstrated need for life insurance (estate planning, business succession, legacy transfer)
• Willingness to pledge collateral and tolerate interest rate risk

Real-World Use Cases

Business Owner Buy-Sell Funding: Mark’s Story

Mark, a 52-year-old manufacturing business owner, had built a $10 million enterprise alongside a longtime partner. As part of their succession planning, they needed to fund a $5 million buy-sell agreement to ensure the surviving partner could buy out the other’s shares in case of death. Mark didn’t want to drain retained earnings or tap into the company’s line of credit. BH Capital helped Mark finance the life insurance policy premiums instead. Using the business’s real estate as collateral, Mark pays only the interest on the loan each year, while maintaining full operational capital. The result? Business continuity and partnership protection — without touching company cash flow.

Estate Planning Without Gift Tax: Lisa’s Legacy Plan

Lisa, age 61, had a net worth of $18 million and was concerned about future estate taxes for her children. She wanted to fund a $6 million life insurance policy owned by an Irrevocable Life Insurance Trust (ILIT), but she had already used most of her lifetime gift exclusion. Rather than make large taxable gifts to the trust, Lisa opted for a premium finance strategy. She pledged part of her municipal bond portfolio as collateral and the lender covered the $180,000 annual premium. She continues to pay only the interest each year. Lisa achieved her estate planning goals — and protected her family — while maintaining full control of her assets.

Asset-Rich, Cash-Light Investor: Jonathan’s Smart Leverage

Jonathan, a 48-year-old entrepreneur, held $7 million in stock and real estate but wanted a $3 million life policy for legacy and retirement planning. Selling appreciated stock would’ve triggered massive capital gains taxes, and cashing out real estate wasn’t an option. With BH Capital’s help, Jonathan financed his policy using his equities as collateral. He pays about $25,000/year in interest instead of fronting $100,000 in premiums. The plan projects the policy’s cash value will repay the loan in 20 years. In the meantime, Jonathan’s assets remain intact, growing alongside the value of his policy.

Deferred Bonus Executive: Maria’s Early Protection

Maria, age 38, is a rising tech executive with a modest base salary but large bonuses structured over time. Her RSU grants would eventually push her compensation into the high six figures, but right now, she needed life insurance protection for her young family. With BH Capital’s help, Maria used premium financing to fund a $2 million policy today. She pays manageable interest on the loan each year, and plans to use future bonus income to repay the balance. The result? Maria secured immediate protection with minimal upfront outlay — and a clear plan to own her policy outright down the road.

Benefits of Premium Financing

• Lower out-of-pocket costs
• Immediate access to high face amount coverage
• Maintain asset allocation and liquidity
• Potential tax efficiency
• Customized loan structure

Risks to Consider

Premium financing is not for everyone. It carries:

• Loan interest rate risk: Rising rates increase annual loan cost
• Policy performance risk: Underperformance can affect ability to repay
• Collateral risk: If policy values underperform, more collateral may be required
• Lender funding risk: Future loan tranches aren’t guaranteed

At BH Capital, we conduct rigorous stress testing of every premium finance design, so clients fully understand the downside as well as the upside.

Is Premium Financing Right for You?

This strategy may be a fit if you…

• Own a business or hold significant assets (real estate, stocks, or private equity)
• Have a net worth of $5 million or more (or $2.5M if under age 50)
• Earn $150,000+ in annual income (or $250K if under age 50)
• Prefer to preserve liquidity instead of liquidating assets for life insurance premiums
• Can post collateral (such as investment accounts or business property)
• Want to solve for estate taxes, legacy transfer, or business succession
• Have a moderate to high risk tolerance and understand interest rate fluctuations
• Are comfortable with multi-step planning and working with a team of advisors

This may NOT be a fit if you…

• Don’t qualify for life insurance due to health or age
• Need small or short-term coverage
• Can’t afford annual interest payments
• Lack adequate collateral or net worth

BH Capital Support

BH Capital Funding provides comprehensive premium financing solutions:

• Turnkey Case Design - Complete premium finance case design and implementation
• Vetted Lender Partners - Access to our network of trusted lending partners
• Professional Collaboration - Work with estate planning attorneys and CPAs
• Advanced Markets - Specialized consultation for complex cases
• Full Transparency - Clear risk assessment and repayment projections
• Exit Strategies - Multiple options for loan repayment and policy management

Disclaimer

This article is for educational purposes only and does not constitute financial, investment, tax, or legal advice. Premium financing involves risk and is not suitable for all clients. Consult your tax and legal advisors. National Life Group does not endorse or administer premium finance programs.