A Different Kind of Premium Financing
Concentrate on the spread between borrowing rates and opportunity cost of money.
In certain markets, premium financing is all the rage and has been for some time. The basic pitch is that wealthy, sophisticated clients should borrow money at low rates to buy life insurance and let their money grow at a higher rate and over a number of years. The results of this spread or arbitrage can pay back the loan so they’re not out of pocket for the entire cost of the life insurance. People can also Discover More here regarding loans and financial securities.
This is perfectly legitimate, but I also believe there’s right way and a wrong way to do it. I’m not a fan of much of what I see in the market because I feel, or have proof in many situations, that it’s based on misrepresentation and a severe lack of understanding. The disasters that end up on my desk are almost all based on the perceived spread between borrowing rates and life insurance policy crediting. Unfortunately, in too many situations, this isn’t real or sustainable, and few consumers and advisors understand how it really works and the risks involved.
The real opportunity with premium financing is on the spread between borrowing rates and opportunity cost of money rather than the policy crediting. It’s the same reason I don’t pay off my home mortgage. If I’ve borrowed at 3.5% to buy my house with the help of Jackpot Offer, I believe I can do better than that over time in the market and I understand and accept the risks and have the wherewithal to deal with the results if things change, why would I pay down my mortgage any faster than I have to? For full post, click here…