Premium Financing Thoughts

[lifesettlementadvisor]

I've been hearing alot more about premium financing lately and wanted to get yalls thoughts on the topic.

For those that are unaware of the process it basically is:

You sell a life policy to a client and have a PM company fund the first 2/3/10 years. The PM company pays the premiums for the alloted time. At the end of the time, the client has the option of paying off the loan (at usually 15-17%), surrendering the policy to the PM company, or doing a life settlement with the policy. If they do a life settlement, they still pay back the loan with settlement proceeds.

On the Agents side, you usually receive a commission from the PM company, but must give between 25-40% of the commission from the sale of the policy to the PM company. There are a few PM companies that do not take a piece of the commission, but pay a lesser commission on the sale of the PM.

 

[Winter_123]

I've been hearing alot more about premium financing lately and wanted to get yalls thoughts on the topic.

For those that are unaware of the process it basically is:

You sell a life policy to a client and have a PM company fund the first 2/3/10 years. The PM company pays the premiums for the alloted time. At the end of the time, the client has the option of paying off the loan (at usually 15-17%), surrendering the policy to the PM company, or doing a life settlement with the policy. If they do a life settlement, they still pay back the loan with settlement proceeds.

On the Agents side, you usually receive a commission from the PM company, but must give between 25-40% of the commission from the sale of the policy to the PM company. There are a few PM companies that do not take a piece of the commission, but pay a lesser commission on the sale of the PM.

I think it is shlock work. These are just clever shell games to buy and sell an interest in the mortality risk of the client and then trade it like a commodity in the market. The fact that the client gets something out of it in a small way does not change that fact nor does the fact that it may be legal. It is still shlock work and not an honorable field to be involved in.

Winter

 

[djs]

Winter - tell us how you really feel! Personally, I agree with you, but then, I feel the same way about dead grandparents sending birthday cards, so I thought it was just me.

Actually, the thread title made me think it was about premium financing as in financing coverage for a large commercial policy, which is done all the time. I don't think about financing the premium for a life policy, which is usually paid on a monthly basis anyway (i.e., the insurance company will finance it for you).

Dan

 

[Mr. Bill]

I personally love the idea, as long as you don't Larry King the client.

 

[lifesettlementadvisor]

Larry King participated in a different program. He did a TBI policy. Basically instead of taking out a loan to cover the first few years of premiums, he sold it on day one. Your client usually gets three percent. King is mad for two reasons. He didnt understand that if he payed the premiums for 2 years and then sold it he would have earned at least 25% instead of 3%. Also now he has maxed out how much insurance he can have and is upset that he cannot take out ANOTHER 10m policy.

 

[Mr. Bill]

So someone mentions a company called Capital 10 (???) that is encouraging agents to find people to do STOLI policies on. Geez, I thought that was dead meat. The agent who told me about it said that these guys are moving right along, with the unique selling tool of paying the CLIENT money up front. What's up with that? Banks mentioned were Wachovia, Citigroup, Deutsche Bank. Anyone with input???

 

[lifesettlementadvisor]

So someone mentions a company called Capital 10 (???) that is encouraging agents to find people to do STOLI policies on. Geez, I thought that was dead meat. The agent who told me about it said that these guys are moving right along, with the unique selling tool of paying the CLIENT money up front. What's up with that? Banks mentioned were Wachovia, Citigroup, Deutsche Bank. Anyone with input???

While I haven't heard of Capital 10, the program is a standard one. I was at the fasano conference a couple of weeks ago and there were reps from all the major banks (wachovia, citi, deutsche, bear) they are all running similar programs.

These programs work in two ways. You can either do a "Wet" policy or a Premium Financed Policy.

If you do a wet policy for a client, You write the policy and have your broker sell it on day 1. The client usually receives 3% of face value for this.

If you do a Premium Financed (which are usually backed by one of the above banks) policy. The client takes out a policy and has it financed for a period of time (usually 2-3 years). During this time, the financing company pays the premiums. After that time the client can either pay off the loan and keep the policy or do a life settlement with the policy. When they receive their payment, they then pay off the loan.

 

[Mr. Bill]

Aren't state DOIs shutting down STOLI? The person who told me about this Capital 10 said the commish is about $20k, the client gets some dough, and the beneficiaries waive their rights for another check. The policies are being written on ages 65+ for $1mm to 5mm. I'm still missing the insurable interest here. I know the banks want the money, but really.

 

[lifesettlementadvisor]

Aren't state DOIs shutting down STOLI? The person who told me about this Capital 10 said the commish is about $20k, the client gets some dough, and the beneficiaries waive their rights for another check. The policies are being written on ages 65+ for $1mm to 5mm. I'm still missing the insurable interest here. I know the banks want the money, but really.

The DOIs arent doing anything on STOLI's right now. Everyone is watching the larry king case to see what happens. It will be the benchmark on policy. Again, I haven't heard of Capital 10, but sounds like they are ripping the agents off.

If you do a program like this, you should receive 100% of the commission, not just 20k and the clients get around 3% of face. So if you write your grandpa a 1M policy, then he will receive a check for 30K.

With insurable interest, people in the LS industry believe that it must only exist the moment you buy the policy. You can then turn around and sell it that afternoon.

No matter the outcome for this wet business, premium financing and traditional life settlements will not be going anywhere.

 

[Macdaddy]

I think it is shlock work. These are just clever shell games to buy and sell an interest in the mortality risk of the client and then trade it like a commodity in the market. The fact that the client gets something out of it in a small way does not change that fact nor does the fact that it may be legal. It is still shlock work and not an honorable field to be involved in.

Winter

I couldn't disagree more. Everyone gets something out of a deal like this.

1. Client gets cash.
2. Agent gets commish.
3. Insurance company gets premiums.
4. Investors get a nice ROR.

What is shlock about that?

I know one agent that personally made over $100K last year from these. His main business is life and health, but when he happens on the right client he proposes it.

I currently have one in the oven myself on a 71 year old friend. I told him how it worked and his response was, "how do I sign up?".

Another agent friend of mine has a $5 million dollar deal in the oven on a client of his.

The settlement biz is a sleeper industry not widely known about to the public and there are big name investment firms buying up these investment funds like crazy that have large portfolios of policies. They actually can ladder them out like bonds.