What does "premium financing" involve in life insurance?

Premium financing in life insurance refers to the practice of taking a loan specifically to cover the premiums of a life insurance policy. This approach allows policyholders, often those with high net worth, to maintain their life insurance without having to use their own cash flow to pay the premiums. By leveraging borrowed funds, individuals can obtain significant amounts of coverage while preserving liquidity for other investments or expenses.

This method can also provide tax advantages, as loan interest might be tax-deductible and the death benefit of the life insurance policy is typically received by beneficiaries tax-free. This financial strategy is especially useful for those who may wish to manage their cash flow more effectively or for businesses looking to insure key employees without straining their operating capital.