How to remove greed from premium financing

Good news: There's a fee-only approach that mutually benefits advisors and clients.

Times are changing in the premium financing industry. Over the past several years, aggressive agents have placed their clients in failing non-recourse transactions, making for substantial chargebacks and a clouded industry. Productive carriers are now changing their approach to regulating these transactions by breathing fresh air into a fee-only approach to premium finance. But before looking forward, we must look back to a psychology fueled by greed, one that cast a shadow of uncertainty on the industry.

This greed became prevalent. So much so, many sought to remove it by looking towards high cash value and levelized commission; this resulted in an insurance chassis that minimized outside collateral risk but provided a reduction in long-term potential accumulation. Careless advisors controlled by greed overlooked the risk of dramatic reduction in policy surrender value, if the market underperformed in early policy years as the rider expired. This translated to unexpected collateral risk. Levelized commissions, high chargeback periods, reduction of long-term growth and uncertainty in performance of the insurance chassis leaves you with too many unknowns in the premium finance structure.

We’ve discovered an approach that fills in those unknowns by empowering you.

It all comes down to reduced commission. The reduced commission works symbiotically with maximizing the high early cash value of the underlying insurance chassis. The result? Dramatically reduced cost. We analyzed two insurance chassis under the same set of standard assumptions. In the commission-based example the insurance chassis included a $170,000 target premium. Compare that to the fee-based example with a $20,000 target premium and a $170,000 structuring fee that gets rolled into the premium load. It’s really no comparison at all. What we came to find is that the potential revenue from the sale of the premium finance structure is greater in the fee-based approach.

By removing the commission load from the underlying insurance chassis, the policy is capable of performing at the far more competitive rate, potentially mitigating collateral and crediting rate risks. A strategy less reliant on high accumulation potential from the underlying insurance chassis translates to a mitigated interest rate risk. Ancillary benefits include the removal of potential commission chargebacks and minimal outside collateral amounts.

Realigning benefits isn’t rocket science. Removing the greed from premium finance transactions mutually advantages advisor and client, yet still maximizes the advisor’s bottom-line while reducing lapse rates. It’s a strategy that takes care of both client and advisor. 

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