Premium financing is an advanced planning strategy in which a third-party lender provides funds to pay large life insurance premiums, typically for high-net-worth individuals or businesses, while the borrower pledges collateral and plans to repay the loan from external assets, policy values, or estate liquidity. The life insurance policy is usually assigned as collateral, and interest may be paid annually or capitalized. Premium financing can allow clients to acquire needed coverage without liquidating investments, but it introduces leverage risk, interest rate exposure, and potential mismatch between policy performance and borrowing costs. Successful premium finance cases require careful stress testing, legal and tax coordination, and ongoing monitoring.

In practice, premium financing is used in estate planning, business succession, and executive benefit cases where large death benefits are needed. Advisors work with specialty lenders, advanced markets attorneys, and CPAs to design structures that meet client objectives and regulatory expectations. Detailed illustrations compare financed versus non-financed scenarios under varying interest rate and crediting assumptions. Carriers and wholesalers issue guidelines on acceptable premium finance practices and disclosure requirements. Ongoing reviews are critical, as changes in interest rates, collateral values, or client circumstances can necessitate unwinding or restructuring the arrangement. Clear disclosure of risks helps avoid misunderstandings and regulatory scrutiny.