Strategy

Premium-financed IUL, conservatively structured.

Premium financing is the most leveraged IUL structure we place. Used correctly, it amplifies a max-funded IUL's tax-advantaged growth. Used poorly, as much of the 2015 to 2021 vintage was, it produces capital calls and litigation. We do this carefully or we don't do it at all.

How the structure works

A commercial bank lends against the cash value of a large IUL policy, typically a multi-million-dollar face amount. The lender pays the premium directly to the carrier. The policy is collateral. The client pays interest on the loan, typically annually.

The policy's cash value grows from the start. The arbitrage: the cash value is expected to grow at the carrier's indexed crediting rate (AG 49-A constrained), the loan accrues at the bank's lending rate. The spread is the structure's economics.

Why this can break

If lending rates rise faster than the crediting rate grows, the structure can become uneconomic. If the cash value grows slower than illustrated, the structure can require collateral injections. If the client's balance sheet weakens at a bad moment, the lender's exit options narrow.

The 2022 to 2024 rate-increase cycle exposed structures that had been written under low-rate assumptions. Many are now in litigation. The math wasn't fraudulent; the assumptions just didn't survive contact with the rate environment they were never stress-tested against.

Per AG 49-A and 49-B, illustrations have constraints on what credited rate can be assumed and how loan spreads are modeled. A premium-financing illustration that shows a meaningfully higher number than the carrier's supportable assumptions allows is doing something the regulation specifically tightened up against.

How we structure it

Stress-test every case under multiple loan-rate shocks, illustration crediting at less than AG 49-A maximum, and multiple exit timings. If the structure survives all of them, we proceed. If not, we don't.

Document an exit plan before binding the case. Cash-value loan, lump-sum repayment from a planned liquidity event, or planned policy-paid-up status, one of these has to be specific and dated.

Use carriers with strong financial ratings and indexed strategies with durable caps. Carrier downgrades and cap compressions are real failure modes; we don't structure cases where these would break the math.

Multi-scenario stress test before binding.
Documented exit plan, specific and dated.
A-rated or stronger carrier; durable index-strategy cap.
Balance-sheet review confirming the client can survive worst-case capital calls.

Common questions

What buyers usually want to know.

What is premium-financed IUL?

A structure where a third-party lender (typically a commercial bank) funds the premiums on a large IUL policy. The policy serves as collateral. The client pays interest on the loan; the cash value in the policy grows (ideally faster than the loan rate). Eventually the loan is exited, often using accumulated cash value or another funding event.

Why is this in a litigation wave?

Premium-financing programs structured between roughly 2015 and 2021 frequently used low-interest-rate assumptions, in some cases relying on illustrated rates that didn't survive the 2022 to 2024 rate-increase cycle. Many of those structures are now under-collateralized or producing capital calls that clients didn't expect. This has generated significant ongoing litigation. We disclose this openly because any honest premium-financing conversation has to address it.

How do you stress-test the structure?

We model the structure under multiple loan-rate scenarios (current, plus shocks of 150, 300, and 500 basis points), illustration crediting rates at AG 49-A maximum and at 50 percent of that maximum, and exit timing at minimum-loan-stay and at maximum-projected-stay. A structure that doesn't survive all stress cases is one we won't write.

Who is this actually for?

Buyers with substantial balance-sheet liquidity (the lender will require collateral and proof of solvency), a tax bracket high enough that the policy's tax-deferred and tax-free legs materially outperform after-tax taxable alternatives, and the temperament to stay in a leveraged structure for the long term. This is not a product for fitting somebody into; it's a structure for clients whose situation specifically warrants it.

What's the exit plan?

Several legitimate exit paths: cash-value loan from the policy itself, lump-sum repayment from a planned liquidity event, or planned policy-paid-up status where the policy's own cash flow services the loan. We don't write premium-financing without a documented exit plan. 'We'll figure it out later' is not an exit plan.

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