Premium financing is an excellent way for certain clients to obtain the funds they need to pay for life insurance. For many, this is the only way they will be able to adequately fund their true insurance needs.

To protect the public, all states have "insurable interest" statutes designed to discourage speculation on an insured's life. Generally, the initial owner and beneficiary of an insurance policy must have a strong economic interest in, and benefit from, the continued life of the insured. For example, family members are generally presumed to have an insurable interest in their spouses and parents. In most cases, for the high net worth client, the life insurance should be owned by an irrevocable trust outside of their estate. This designates their children as the beneficiaries, except in valid business insurance arrangements.

It is important the loan obligation be initiated outside of the estate by utilizing a stand-alone irrevocable trust. In addition, the financing arrangements should be structured for repayment between the lender and the trust. Any disposition of the life insurance in the future could result in long term taxable gains to the trust.

One should review and compare the annual interest cost and fees within the various financing platforms. It is critical to ascertain any other stipulations or restrictions which could be included within the financing platform. Also, it is very important the financing platform utilize a pure lender without any intent to acquire the life insurance for the life settlement market.

Each person, based on their age and financial circumstance has a limited amount of obtainable life insurance. This is called "life insurance capacity." It is in the client's best interest to review how much of this capacity should be retained for future planning issues.