Purtzki, Johansen + Associates


Buying life insurance without your own money

There are many doctors who see the need for life insurance but do not have the cash flow available to pay for the premiums. Often these doctors are asset rich and cash poor. Or they simply are reluctant to tie up their own money.

Mark Halpern, a well-known life insurance advisor, suggests that clients use the Immediate Financing Arrangement (IFA) as a leveraging strategy to acquire the life insurance policy.

Basically you pay the premiums and immediately borrow back those funds. This allows you to get the life insurance at what is just a fraction of the true premium cost, without reducing cash available for their use. Ultimately you enjoy the tax benefits and increase your estate value. As the cash surrender value builds up in the exempt whole life insurance policy, it can be used to reduce your out-of-pocket cost to purchase the policy. This allows you to keep your money in the form of borrowed premiums working for you in whatever investment you want.

Using the IFA, you use your insurance policy as collateral for a line of credit with the bank or the life insurance company. Every year, you pay interest only on the line of credit. As you pay the ongoing premiums for the policy, you are eligible to borrow back up to 100% with sufficient collateral. Ultimately the loan has to be repaid. It can be done in many ways. Mark suggests that the most common method is to repay the loan using the tax-free death benefit and pay out the remaining proceeds out to the beneficiaries. Some people prefer to repay the loans as the income grows or they sell other investments to settle the loan.

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