Premium finance for life insurance is a loan made from a premium finance company like Capital for Life, or a private bank to fund the upfront lump-sum premium payable on a life insurance policy.
Premium finance loans typically cover up to 100% of the life policy value. The loan interest rate is usually variable and renewed on an annual basis. Once the premium finance loan is in place, the high net worth individual or company taking out the loan typically pays interest-only to the finance company or bank providing the loan.
Financing the premium of a life policy is popular and attractive to high net worth individuals because a minimal amount of upfront capital is needed to buy a policy. This means capital can remain invested or used for other investments with the aim of generating higher returns than the interest being paid on the premium finance loan.