Life Insurance
Premium Financing
Premium financing is an advanced planning strategy used by high-net-worth individuals to purchase large permanent life insurance policies—often $5 million or more in coverage—by borrowing the annual premium from a bank or specialty lender at a competitive rate rather than liquidating assets.
Last reviewed: May 2026 · Editorial methodology
Definition
Premium financing allows an insured to leverage low-cost borrowed funds to pay life insurance premiums on a large permanent policy, typically indexed or variable universal life, with the expectation that the policy's internal rate of return will exceed the loan interest rate—creating positive arbitrage. The insured collaterally assigns the policy's cash value and death benefit to the lender to secure the loan, with additional collateral often required if the policy's cash value falls below a threshold. Loans typically carry interest rates of 1-month SOFR plus 100–250 basis points, which at 2026 rates translates to approximately 5.5–7.5% annually. A $20 million IUL policy with $500,000 annual premiums might be financed over 10 years with $5 million in cumulative borrowing; if the policy's indexed interest crediting averages 6.5% and loan cost averages 6.0%, the net benefit justifies the strategy. Premium financing is exclusively used by ultra-high-net-worth individuals—typically those with estates exceeding $10 million—as the complexity, collateral requirements, and risk of interest rate increases make it unsuitable for average consumers. Risks include lender exit from the market, interest rate spikes, policy underperformance, and the need to service or refinance the loan at maturity.
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Cover Forge USA Editorial Team
Editorial Lead
This article was researched and written by the Cover Forge USA editorial team against federal sources (NAIC, CMS, FEMA, DOL, SSA, state DOIs) and standard policy forms. Bylines organize content by topic — they do not assert individual licensure. See our editorial-policy for details.
Reviewed 2026-06-14
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