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Life insurance premium financing

Adding a borrowing strategy to your estate plans can protect your heirs in the future—and your financial position today. For the executors of your estate, paying death taxes may precipitate a liquidity crisis—forcing them to hastily sell assets that would otherwise be inherited by your beneficiaries, or resulting in other undesired outcomes.

What is Life Insurance Premium Financing?


A way to plan for estate taxes

Life insurance premium financing can help you maximize wealth to your heirs and keep your legacy intact. 

One way to protect future heirs is to insure your life so that, at your passing, estate taxes can be paid with the proceeds from a high-value life insurance policy. Typically, in such arrangements, the policy is held separate from the rest of the estate, in a trust.1

An insurance policy can directly benefit your heirs and other beneficiaries. The proceeds of the policy can be used to:

  • Cover estate taxes and thereby avoid liquidating assets or disrupting an investment portfolio
  • Retain control of significant or illiquid assets, such as a concentrated stock position or real estate assets.
  • Provide funds to sustain a business

Many of our clients consider financing their life insurance premiums in order to reduce the gift tax implications of contributing assets to a trust

Why borrow?

 

Not surprisingly, putting such protection in place comes at a significant cost, in the form of annual policy premiums. As a result, many clients elect to finance those costs with a loan collateralized by the cash surrender value of the policy, in addition to marketable securities.

This approach has the added benefit of being tax efficient: the funds that the trust borrows to pay the annual premiums and interest expenses generally are available free of gift taxes.

Financing the cost of a high-value insurance policy can benefit you and ultimately your estate in many ways, now and in the future, by allowing you to:

  • Maximize insurance coverage without adversely affecting your current cash flow (or lifestyle)
  • Avoid having to sell assets—and potentially triggering a taxable event—to cover the cost of the premiums
  • Allow investments within the policy to grow free of income taxes
  • Gain access to liquidity at an interest rate that is often less expensive than a “policy loan”

A “carry” opportunity may exist as well: If the interest rate charged on the loan is lower than the rate of return earned on the cash value of the policy, there may be potential appreciation.

 

Life Insurance Premium Financing risks to consider:


There are risks inherent in any borrowing strategy. These include interest rate fluctuation, market volatility and the possibility of collateral shortfall, which may lead to a margin call. Before deciding whether to finance the acquisition of high-value life insurance by borrowing, we encourage you to discuss your objectives with your J.P. Morgan team as well as with your legal and tax advisors.

 

Specialty Lending

1Trust should be trusteed with an independent, non-subordinated party to avoid exposure to insurance contract indirect “incidences of ownership” rules set forth under IRS Sec. 2042.

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Key risks

This material is for information purposes only, and may inform you of certain products and services offered by private banking businesses, part of JPMorgan Chase & Co. (“JPM”). Products and services described, as well as associated fees, charges and interest rates, are subject to change in accordance with the applicable account agreements and may differ among geographic locations. Not all products and services are offered at all locations. If you are a person with a disability and need additional support accessing this material, please contact your J.P. Morgan team or email us at accessibility.support@jpmorgan.com for assistance. Please read all Important Information.

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Any views, strategies or products discussed in this material may not be appropriate for all individuals and are subject to risks. Investors may get back less than they invested, and past performance is not a reliable indicator of future results. Asset allocation/diversification does not guarantee a profit or protect against loss. Nothing in this material should be relied upon in isolation for the purpose of making an investment decision. You are urged to consider carefully whether the services, products, asset classes (e.g. equities, fixed income, alternative investments, commodities, etc.) or strategies discussed are suitable to your needs. You must also consider the objectives, risks, charges, and expenses associated with an investment service, product or strategy prior to making an investment decision. For this and more complete information, including discussion of your goals/situation, contact your J.P. Morgan team.

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JPMorgan Chase Bank, N.A. and its affiliates (collectively "JPMCB") offer investment products, which may include bank-managed accounts and custody, as part of its trust and fiduciary services. Other investment products and services, such as brokerage and advisory accounts, are offered through J.P. Morgan Securities LLC ("JPMS"), a member of FINRA and SIPC. Insurance products are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. JPMCB, JPMS and CIA are affiliated companies under the common control of JPMorgan Chase & Co. Products not available in all states.

 

Please read the Legal Disclaimer in conjunction with these pages.

 

 

INVESTMENT AND INSURANCE PRODUCTS ARE: • NOT FDIC INSURED • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY • NOT A DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED BY, JPMORGAN CHASE BANK, N.A. OR ANY OF ITS AFFILIATES • SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED
Bank deposit products, such as checking, savings and bank lending and related services are offered by JPMorgan Chase Bank, N.A. Member FDIC. Not a commitment to lend. All extensions of credit are subject to credit approval.
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