Premium finance is a strategy used where a policyowner will pay a large life insurance premiums (usually in the millions of dollars) in conjunction with borrowing from a third-party lender, rather than tying up their own capital.
Similar to arranging a favourable loan term to purchase real estate, instead they are buying a life insurance asset and instead of paying premiums out of their own pocket, using borrowed money.
With the leverage available from using the borrowed money to fund the majority of the premium for a financed life insurance, this allows the policyowner to acquire substantially more life insurance for a small fraction of the total premium outlay normally needed to support this big of a policy. This not only allows them to keep other assets performing elsewhere, but it often produces a very attractive tax-free IRR (internal rate of return) for a relatively nominal out of pocket cost.
