What's Premium Financing?

Physician's Money DigestJune30 2004
Volume 11
Issue 12

How it works:

Want a life insurance policy with abig death benefit without the hefty premiums?Some insurance agents areaggressively touting premium financingas the answer, but there are drawbacks,insurance experts say. You buy a policy that builds cash valueand borrow money to finance the premiums,leaving assets free to invest elsewhere.Down the road, you hope to usethe cash value in the policy to pay off theloan and have some left over. It soundsgood, but there are some potholes in theroad to your goal. Interest rates couldrise or the market could tank, eroding thereturn on your other investments andmaking it hard to offset interest costswith investment gains. Such policies, theexperts say, are best for those who wouldhave no trouble paying the premiums butchoose not to.

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