Premium Financing

Life insurance premium financing uses borrowed money to fund insurance policy premiums, and it involves taking up a third-party loan to pay for the policy’s premiums. The lender will charge a interest, and the borrower (the insured, in this case) can repay the loan in regular instalments until the debt is satisfied.

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This is mostly offered to the large sum assured policies (that pay substantial amount for death benefits), so that the policy owner does not need to tie up their own capital and maintain cash liquidity for other investment needs. However, the current rising interest rate may eat into the benefits that insured try to accomplish in the first place. If the policy allows equities to be used as collateral at start, the policy values may underperform during the raging market condition and the insured could be forced to provide more collateral to avoid default once the loan balance exceed the value of the collateral.