In recent years, many of your clients were sold (yes, sold) commercial premium financing plans. A recent Wall Street Journal article entitled “Rising Rates Make Life Insurance Funded with Debt More Costly” raises significant concerns:
“Even before rates started to rise, consumers were being forced to make big payments when strategies failed to deliver the promised returns. Many sued their agents and insurers….The lawsuits claim that agents misled them about the strategy’s risks. The policies are supposed to generate enough income to repay the loans, which can also be repaid through the death benefit….Since rates started to rise, a benchmark used in many premium-financed transactions, the 12-month Secured Overnight Financing Rate, has jumped from less that half a percent a year ago to more that 4% now. Borrowers pay 1.5 percentage points to 3 percentage points above this rate….”
In short, many clients who implemented these plans are experiencing the perfect storm of substantially higher borrowing rates, poor policy performance and significantly higher collateral requirements – and with no relief in sight.
I have never promoted or sold a premium financing case. In fact, in 2001, I co-authored an article with Steve Leimberg in Estate Planning magazine which raised many of the issues that are even more relevant 20 years later. As we wrote in our article,
“For decades, one of the most common expressions among life insurance professionals has been, ‘Clients do not object to owning life insurance; they simply object to paying for it.’ In a never-ending quest to satisfy clients’ wishes, a growing number of life insurance agents have been working overtime to devise new strategies to propose to clients and their advisors in the sophisticated, high-income, high net worth marketplace….” There is no such thing as free insurance!
Exiting these plans can be a thankless, time consuming and costly exercise. My goal is simply this: to inform you about this important issue.View Post