Life Insurance Premium Financing Calculator
Calculate Premium Financing Costs
Is Premium Financing Right for You?
Life insurance premium financing allows high-net-worth individuals to borrow funds from a lender to pay insurance premiums, keeping their capital deployed in higher-return investments. The strategy works best when the policy's internal rate of return or investment yield exceeds the loan interest rate. However, it carries significant risks including rising interest rates, collateral calls, and policy lapse risk if the loan isn't managed carefully. This calculator helps you see the raw cost of financing versus direct payment, so you can make a more informed decision with your financial advisor.
Frequently Asked Questions
Who typically uses premium financing?
Premium financing is most common among high-net-worth individuals with estates over $10 million who want large life insurance policies without liquidating assets or tying up capital in premiums.
What are the risks of premium financing?
Key risks include interest rate increases, collateral shortfalls, loan calls if the policy underperforms, and policy lapse if the loan isn't serviced. It's a complex strategy requiring careful ongoing management.
Can the policy's cash value cover the loan?
Ideally yes — the goal is for the policy's cash value growth to offset loan interest or repay the balance. But cash value projections are not guaranteed and may fall short.
What loan rates are typical for premium financing?
Rates typically range from SOFR + 1% to SOFR + 3%, which in recent years has meant 6–9% annually. Rates fluctuate with market conditions and the borrower's creditworthiness.
Is premium financing worth it?
It can be, but only with expert guidance. The strategy requires proper collateral, careful monitoring, and a clear exit strategy. Many poorly structured arrangements have ended in significant losses.
Disclaimer: Estimates are for educational purposes only and do not represent actual insurance quotes. Rates vary by insurer, state, and individual underwriting. Consult a licensed insurance professional.