Premium Finance Programs

Transcription

1 Marketing Guide Life Insurance Premium Finance Programs Information and Guidelines FOR BROKER-DEALER OR AGENT USE ONLY LBL8190

2 Providing the life insurance coverage your customers need. Help your customers with high net worth get the life insurance protection they need with minimal impact on their cash flow and without the need for asset liquidation. When properly structured, premium finance programs can do just that. And LBL is here to help you understand how. FOR BROKER-DEALER OR AGENT USE ONLY

3 Types of premium finance programs. Premium finance programs generally fall into two categories: traditional and nontraditional. Traditional Programs Fully Collateralized With Interest Due in Cash The borrower provides full collateral for the loan advance generally using the financed policy s cash surrender value and other assets and the annual interest is paid out of pocket. Fully Collateralized With Interest Accumulated on the Loan Full collateral (the policy s cash surrender value and other assets) for the loan advance is provided up front, and the annual interest is added to the loan principal. Nontraditional Programs Nonrecourse Loans The borrower posts the financed policy s cash surrender value and death benefit as the sole collateral, leaving little to no out-of-pocket costs for the borrower. LBL does not accept applications for this kind of program. Hybrid Premium Finance This program blends characteristics from traditional and nontraditional premium finance programs. General guidelines. The following guidelines help to illustrate the premium finance programs that LBL will and will not consider for approval. Acceptable Programs LBL will consider the following premium finance programs that meet our criteria: Fully collateralized with interest due in cash Fully collateralized with interest accumulated on the loan Hybrid premium finance Unacceptable Programs LBL will not accept or support any form of the following programs: Investor-owned life insurance (IOLI) Stranger-owned life insurance (SOLI) Nonrecourse loans

4 The approval process. Level 1: Premium Finance Program and Vendor Approval 1,2 Prior to accepting any application, LBL will review the premium finance program to determine whether the program fits within the outlined parameters and is economically viable across a range of scenarios. The review will focus on the following factors: Duration of the loan. Interest rate. Fees. Whether interest is capitalized or paid each period. Collateral requirements. Substance of the trust. The following are preferred program characteristics: The insured/trust grantor is making a personal investment in the life insurance program. If any portion of the interest on the premium financing program is capitalized, the customer must demonstrate that there is a personal investment in the business or estate plan and that there is a plan to pay off a substantial portion of the premium financing during the insured s lifetime. The loan terms and interest rates are reasonable and do not create an incentive to transfer policy ownership to the lender or investors. There is no provision stating that the lender will accept ownership of the policy in full satisfaction of the outstanding premium financing. If a life insurance trust exists, the trustee s primary fiduciary responsibility is to the intended beneficiaries of the trust. (The trustee should be selected by the insured and not the lender.) The program is available and actively marketed to applicants across a wide range of ages. FOR BROKER-DEALER OR AGENT USE ONLY

5 Program features that may raise concerns include, but are not limited to, the following: The proposed insured/policy owner has little or no out-of-pocket cost during the first two to three policy years. The proposed insured/policy owner has no personal liability for repayment of the loan used to fund the policy. The proposed insured/policy owner may be offered a financial inducement (sometimes described as an advance on the loan) to purchase the policy. The proposed insured owns a policy directly or the policy is owned by a trust or other business entity using nonrecourse financing to pay all premiums or accrued interest. When the loan matures, the insured/policy owner may keep the policy by repaying the loan plus accumulated interest, relinquish the policy to the lender in satisfaction of all debts, or sell the policy in the open market to a life settlement company. The beneficiary receives only a small percentage of the death benefit, if any, after repayment of loans and other financing costs. Level 2: Application Submission and Approval Following approval of the premium finance program, an application may be submitted along with a cover letter from the MBA s office detailing: A strong case that an insurance need exists. How the proposed financing strategy meets the customer s specific needs. Plans for satisfying the loan obligation and sustaining the policy beyond the initial loan period. In addition, a completed Premium Finance Intent form (LBL7161) must be included if the application is submitted under the trial application process. Applications will be reviewed individually by LBL and will be judged on the following criteria: The substantiated planning purpose. Sustainability of the policy under the proposed premium financing program. The stated exit strategy.

6 Available Products and Program Face Amounts LBL s Ultra Plus and Ultra Index can be used with premium finance programs. Program maximum face amounts are as follows: Ages 0 70: No stated maximum; based on underwriting. Ages 70+: $3 million limit at regular pricing; additional $7 million under enhanced retention program (maximum age is 79). Level 3: Approval by Independent Premium Finance Vendor Guidelines for this final step will be provided by the premium finance vendor. Due Diligence If the producer is aware, or reasonably should be aware, at the time of application that the policy may be used in an unacceptable arrangement (IOLI, SOLI, or nonrecourse loan), this information must be disclosed to Lincoln Benefit Life. If LBL later becomes aware of any omissions, misstatements, or misrepresentations regarding the possible intent to sell a policy or the true source of funding, the producer may be subject to disciplinary action up to and including contract termination (without vesting). In addition, LBL intends to protect its contractual rights to rescind policies issued based on false information contained in the application. Legal and Tax Issues Premium finance programs can result in various legal and tax implications for your customers, including: Estate and gift tax considerations. Interest deductibility. Modified endowment contract considerations. Each potential customer should consult his or her own attorney and/or tax advisor prior to entering into these kinds of agreements. Lincoln Benefit Life and its representatives do not provide legal, tax, or investment advice. FOR BROKER-DEALER OR AGENT USE ONLY

7 Meeting your customers needs. With careful planning, premium finance programs can help your customers obtain the life insurance protection they need to help secure their legacies. To learn more about the guidelines for LBL s premium finance programs, visit lblsales.com today.

8 lblsales.com 1 Criteria and guidelines will apply to all premium finance programs provided by third-party lenders. These parameters are fluid and subject to a continuous review process and change. Approvals can be withdrawn from these programs at any time without notice. Contact your marketing organization or your LBL regional vice president for a list of currently approved premium finance programs and vendors. 2 All business placed under approved premium finance programs will be handled outside of the standard agent and MBA bonus programs established for LBL s fixed life products. The alternative bonus rules (LBL7450) must be agreed to in writing prior to submitting business. All guarantees are based on the claims-paying ability of Lincoln Benefit Life Company. Neither Lincoln Benefit Life nor its agents and representatives can give legal or tax advice. Ultra Plus (UL0700) and Ultra Index (UL0730) are flexible premium universal life insurance policies issued by Lincoln Benefit Life Company, Lincoln, NE, a wholly owned subsidiary of Allstate Life Insurance Company, Northbrook, IL. Not FDIC, NCUA/ NCUSIF insured Not insured by any federal government agency Not a deposit No bank or credit union guarantee May go down in value 2011 Allstate Insurance Company 1/11 FOR BROKER-DEALER OR AGENT USE ONLY This material may not be distributed, reproduced, or shown to the public in oral, written, or electronic form as sales literature. LBL8190