By R. J. Kelly, AEP, CAP, CEPA, ChFC, CLU, MSFS, RICP, WMCP | Wealth Legacy Group®, Inc. | San Diego, CA
Leveraged life insurance (sometimes called premium financing) allows you to use a lender’s checkbook to fund a large life‑insurance contract. If implemented correctly, the result is a powerful combination: estate tax liquidity, asset protection, and tax‑free supplemental income—without liquidating your investments.
But how do you know if this strategy is right for your family? Here is a clear framework to help you make a decision. You’ll find definitions, indications of a strong fit, benefits, risks, common mistakes, and timing indicators.
If you’re looking for a deep dive into how these contracts work as an investment, our Imagine That™ newsletter on “Investment‑Grade Life Insurance” is the best next read.
What Is Leveraged Life Insurance?
- A strategy where a lender finances life insurance premiums of $100,000 or more per year, often for an Indexed Universal Life (IUL) chassis.
- The contract accumulates tax‑advantaged cash value and provides a substantial survivor benefit.
- Insureds and/or their families use the growth in contract asset values to repay the loan eventually, while enjoying tax‑free income and/or use the survivor benefits for continuing support of loved ones … none of which is includible in the estate.
Signs This May Be a Fit for Your Family
- Net worth of $10M+ with liquidity or predictable cash flow to cover loan interest.
- Desire for tax‑advantaged growth while preserving personal investment portfolios.
- Legacy planning needs, for example, estate tax liquidity or equalizing inheritances.
- Philanthropic goals where life insurance can amplify charitable giving.
- Asset protection benefits, since many states shield life insurance cash values from creditors.
Key Benefits for High & Ultra-High Net Worth Families
- Tax‑free retirement income through contract loans.
- Estate liquidity to cover taxes without selling illiquid assets like real estate or business interests.
- Leverage: Use the bank’s capital instead of liquidating personal investments.
- Enhanced growth via performance multipliers and index crediting strategies.
- Flexibility: Access cash value while maintaining survivor benefit protection.
Important Features to Look For
- High early cash value riders – reduce collateral requirements in early years.
- Performance multipliers – leverage index‑linked growth potential.
- No‑lapse guarantee – ensures the contract stays in force.
- Special loan provisions – fixed or indexed loans to reduce interest rate risk.
- Ongoing loan management – a knowledgeable and communicative team in place for annual loan review to minimize loan and collateral requirements and maximize contract performance.
Risks and Considerations
- Interest rate fluctuations can affect loan costs.
- Contract underperformance could require more collateral or loan repayment.
- Complexity: This is not a “set it and forget it” strategy—ongoing monitoring is crucial.
- Exit strategy: Families need a plan for loan repayment or refinancing.
How Do I Know If This Fits Our Situation?
Ask yourself:
- Do we have a minimum $10M net worth and stable income sources?
- Are we comfortable with long‑term commitments and financial complexity?
- Do we already maximize other tax‑advantaged savings strategies?
- Do we value estate liquidity, wealth transfer, or philanthropic impact?
If the answer is “yes” to most of these, leveraged life insurance is worth exploring.
Next Steps
This strategy requires seasoned guidance. At Wealth Legacy Group®, Inc., we tailor premium‑financed IUL strategies for high and ultra-high net worth families who want to preserve wealth, protect heirs, and create new opportunities.
How do you know if leveraged life insurance fits into your family’s story? Let’s find out together. Schedule a 20‑minute complimentary consultation at the link here.