3. Funding Arrangement

The IFA process involves designing a funding arrangement to pay for the life insurance policy premiums. This may include various funding mechanisms such as:

Out-of-pocket premium payments: The policyholder pays the premiums directly from their revenue, income or savings.

Premium Financing: Borrowing funds to pay the insurance premiums with the policy or other assets serving as collateral.

Split-Dollar Arrangements: Sharing the cost of premiums between the policyholder and another party such as an employer or family member.

Irrevocable Life Insurance Trust (ILIT): Establishing a trust to own the life insurance policy and pay the premiums.

1. Assessment and Planning

The process begins with an assessment of the individual’s financial goals, insurance needs and overall financial situation.

2. Selection of insurance policy

Based on the client’s needs and goals, an appropriate life insurance policy is selected. This may include term life insurance, whole life insurance, universal life insurance or other types of policies.

By following the IFA process for funding life insurance policies, individuals or companies can ensure that their insurance needs are met effectively and that the funding arrangement aligns with their financial objectives and circumstances.

Considerations:

IFAs can expense the interest cost. PF cannot. Please consult your professional advisors, accountants and lawyers regarding expense deductibility.

Credit Underwriting Considerations:

1. Credit Bureau Reporting Entities: These include banks, trust companies and credit unions. These are governed by the banking act. Some may say they do not report to the credit bureau; but, that is not guaranteed.

2. Capital Market Lenders: These are non-reporting entities and will not report to the credit bureau.