Case Study Details


A successful business owner recently sold his business and after meeting with his estate planning attorney it was determined that his projected estate tax liability at age 85 (statistical mortality) would be approximately $16,219,230. Being familiar with the concept of leveraging life insurance to provide dollars to offset the projected estate tax, the attorney suggested a meeting with the client’s insurance advisor to explore life insurance options. Upon meeting with his advisor, it was determined that premiums for the desired life insurance coverage would be $181,483 per year. Projecting the cumulative premiums to age 85, the client would pay $5,444,490 for the $16,219,230 death benefit. This would provide attractive leverage of approximately 3 to 1 (cumulative premiums paid to net death benefit). The client saw the benefit of utilizing life insurance and understood why so many pursue the strategy; however he was somewhat uncomfortable paying the premiums.


A premium financing strategy was developed and implemented. The policy would be funded with ten equal premium payments over the next ten years with zero dollars contributed by the client.


Over the course of the next 30 years the client will have paid zero dollars in insurance premiums versus the $5,444,490 had he chosen not to utilize the premium financing program. Furthermore, if the client were to invest those dollars that he would have otherwise paid in insurance premiums over the same 30-year time frame, those dollars could potentially have grown to approximately $10,400,487, which his heirs would also receive in addition to the life insurance benefits via an ILIT (Life insurance Trust).

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