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Looking to retain your key employees and partners? You may want to consider offering them premium financing.
Premium financing is an alternative way of paying for life insurance premiums. It lets you borrow money to pay premiums so you can avoid liquidating assets you would have otherwise had to sell. You can then use your policy value to protect your family members or boost your retirement savings.
Here’s what you need to know about it as an employer.
WHAT IS PREMIUM FINANCING?
Premium financing is when a life insurance policyholder borrows money to pay for their premiums. Some people with large life insurance policies find that premium financing is a more attractive option than making payments out of pocket.
With premium financing, you pay the loan interest annually. You can repay the principal at any time, up to and including at death. If there’s still a loan balance at your death, part of the life insurance benefit will repay the loan.
Premium financing protects your future income without draining the money you have right now. It offers more protection and retirement income potential than you could get without leverage. It is a proactive strategy that can help you, your employees, and your families maintain your lifestyles in retirement or if something bad happens.
WHY EMPLOYEES MAY WANT PREMIUM FINANCING
Premium financing can be a good strategy if you can get lower interest on a loan than what you expect to earn on your other assets. It may give you a better rate of return than paying premiums out of pocket. Ultimately, it depends on your loan terms, how the assets you would have otherwise liquidated perform, and when you repay the loan.
Over half of Americans have a life insurance policy. Most people want to make sure their loved ones will stay financially secure if they pass away, and some also use their policy’s cash value to help with retirement savings.
Premium costs can vary quite a bit. Your premium amount depends not only on the size of the policy, but also on your age, health, health habits, and other factors. For example, premiums for a younger person who doesn’t smoke will generally be less expensive than premiums for an older person who does.
High net worth individuals often have coverage in the millions or tens of millions of dollars. They want policies that cover their unique business, tax, and inheritance concerns. Since these premiums can cost tens of thousands a year, or even over $100,000, high net worth individuals often prefer to borrow at low rates. Premium financing lets them keep the money they would have spent on premiums in investments with a higher ROI.
Premium financing can be a good option for anyone who:
- Doesn’t want to use their current capital to pay for premiums.
- Needs a large insurance policy for estate planning, asset protection, wealth accumulation, liquidity at death, or business purposes.
- Can be insured at standard rates or better, and satisfies underwriting regulations for the carrier.
WHY EMPLOYERS SHOULD OFFER THIS UNIQUE BENEFIT
In today’s work environment, many companies are struggling to retain employees at all levels. Some employers are especially worried about key high-level employees leaving. When these people leave the company, they often take intellectual capital, clients, and other employees with them.
Companies are looking for new ways to reward and retain key employees and non-equity partners. With premium finance as a benefit, companies can offer generous future benefits while still staying within budget.
Employers can offer extra bonuses that go toward life insurance policies, with restrictions that encourage employees to stay. For example, they can have the employee sign a written agreement saying that the bonuses are only available after a long vesting period. It’s a system that encourages employees to stay and do their best on the job.
With the right premium financing benefit, employers can make key employees think twice before walking away.
GET PREMIUM FINANCING FOR YOUR EMPLOYEES WITH LG RESOURCES
LG Resources offers consulting services to help employers create a great benefits package for themselves and their employees. We can help you find the best options, plan finances, and qualify for tax credits while you build a benefits program that attracts the best employees.
With LG Resources, you can:
- Save money on your benefits program
- Set up employee benefits faster
- Attract and retain the employees you want
- Find the best premium financing options to offer
Get in touch with us today about building a tax-advantaged benefits package that includes premium financing.
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