Most advisors have likely discussed life insurance with clients to help cover estate expenses and tax bills at death. However, if you aren’t also talking about insurance lending solutions, you’re missing out on an opportunity to grow your business and better serve your clients.
While these lending solutions aren’t new to the market, there are some niche strategies you may not be well versed in. Equitable Bank, for instance, offers a suite of three insurance lending solutions.
“We like to operate in unique spaces and have a philosophy of not doing what every other bank does,” says Tom Schiersch, Director, Insurance Lending and Wealth Solutions Sales, at Equitable Bank. “We pride ourselves on a high level of broker and advisor engagement, as well as customer service.”
Equitable offers two cash surrender value (CSV) lines of credit: the FLEX and the MAX. The FLEX is designed for older clients (aged 50-plus) who simply need access to a lower percentage of the CSV, and there are no required monthly interest payments. Meanwhile, there is no age requirement for the MAX line of credit, and clients can access 90% of the CSV, paying monthly interest only. Learn more about each solution here.
Another insurance lending solution that Equitable offers is an Immediate Financing Arrangement (IFA). And, unlike other lenders, Equitable doesn’t require excess collateral to fully secure the loan.
An IFA is designed for high-net-worth clients who have a large whole life insurance premium, typically $100,000 or more.
“They’ve experienced success in their business and life in general, and that has resulted in a big impending tax bill at death,” explains Michael Pilz, Head, National Sales, CSV Lending, at Equitable Bank. “The insurance they purchase is going to help preserve the estate, cover taxes, et cetera.”
In adding an IFA, clients may get full liquidity to the premium value of the insurance, he adds. “It’s a strategy to allow them the best of both worlds. They’re going to buy the insurance policy and pay the premium. But in working with a lender, like Equitable Bank, they may be able to borrow back that same premium dollar to use for whatever alternate purpose they wish, like reinvesting back into their business, for example.”
Let’s apply this strategy to a hypothetical client scenario to better understand how it works. The client’s details are as follows:
In this situation, Jackie Uy Ham, Vice-President, Growth Businesses, at Equitable Bank, explains that an IFA would be beneficial for the client. They’d gain access to the full $150,000 premium, which they could reinvest in their business to generate returns.
“The client is able to purchase their policy and pay minimal, basically interest-only, payments on an ongoing basis,” says Uy Ham. “Then, with an IFA, they instantly unlock all of the cash that they’ve just put into the policy. It’s a smart play for many affluent individuals.”
Further, this client wouldn’t be required to provide excess collateral to secure the loan, which can be difficult for developers who own many properties, she says. That’s because many lenders will not accept real estate as excess collateral because there are still mortgages on the properties, so clients don’t own them outright.
“Even though this client may have 10 properties, each worth $1 million and maybe only $1 million in total mortgages, each property has $100,000 on it, it may not be acceptable collateral for other lenders,” adds Pilz. “There is no need to worry about this with us.”
Equitable also offers competitive rates. “The rate a deal qualifies for is based on many factors. The major ones being how large is the loan and how secure is it. In many cases, we expect these main factors to improve as the IFA strategy plays out over subsequent years. That being the case, a borrower could expect that their rate will improve over time as well,” he says.
Discussing IFAs with clients
Ready to bring IFAs into conversations with affluent clients? First, ensure you identify an IFA opportunity; the client must have a big insurance need.
“If the client is hesitant and says, ‘I make more money when I have that dollar in my business or investment account,’ that should be a trigger for the advisor that the client has a potential IFA need,” says Pilz.
He adds, “There are a lot of advisors interested in the IFA space because of the larger premiums involved. However, IFAs are an advanced concept, and advisors would do themselves and their clients a huge service by ensuring they are well versed and educated on all the associated aspects. IFAs are part insurance, part lending, kind of married together. Advisors need to ensure they have the knowledge to identify opportunities, ensure client suitability, and be able to work with both the insurance company and lender to ensure success.”