1) What is the typical age range of clients in traditional premium finance scenarios?
We have financed transactions with insureds in age ranging from 35 to 83 years old. The age will directly impact the required annual premium and hence the collateral required as well as the long-term net economic benefit. Back to top.
2) Is there a minimum net worth requirement and is spousal net worth considered?
The minimum net worth requirement is $7,500,000 and spousal net worth is considered provided the spouses file joint returns. Back to top.
3) Are there minimums and/or maximums in regards to policy size?
There is no minimum or maximum policy size. However, the minimum annual premium is $375,000, while there is no maximum. Back to top.
4) What life insurance underwriting classes/ratings will you work with?
It is a general misconception that only policies underwritten at Standard or Preferred risk work within a traditional premium finance transaction. In certain instances, even sub-standard risk rated policies could be eligible. Each rating will impact performance in a different way. During the early design stages, i.e. prior to having received the underwriting offer, we only run Standard in our case design. Back to top.
5) What types of life insurance policies are eligible for traditional premium finance?
Universal Life, Indexed Universal Life, and Whole Life are the accepted types of insurance policies. It is important that the transactions are structured from inception to work seamlessly with the financing aspect, ensuring that the clients’ goals are met. In general, long-term success of a premium finance transaction is more difficult to achieve when the life insurance policy has been issued outside the context of an integrated case design. Back to top.
6) How does the process work and what is the general time frame for a transaction from start to finish?
From the lending standpoint, the transaction can be consummated fairly quickly. Assuming all documentation is complete, the transaction can be completed in as short as four weeks. Back to top.
7) What documentation is required when applying for a premium finance loan?
In addition to a completed loan application, we ask for an AICPA Compilation Letter (which includes a personal balance sheet and an income-expense statement), 2 years of Tax returns (possibly 3 years depending on the size of the loan), Corporate returns if the client owns his or her business and the value of the business makes up more than 25% of their net worth), copies of the driver’s licenses of the parties involved, and a copy of the Trust Agreement. Depending on the case, there could be other requirements as well. Back to top.
8) Under which state laws is the Irrevocable Life Insurance Trust formed?
In the state of the client’s choice, provided there is a valid nexus. Back to top.
9) What are the out of pocket costs to the clients and can they be rolled into the loan?
The cost to the client is the legal cost to structure the Irrevocable Life Insurance Trust (ILIT) and the cost of collateral if a Letter of Credit (LOC) is posted. Interest and arrangement fees can be rolled into the loan. Back to top.
10) At the end of the initial loan, does the Insured have to re-qualify?
The loans have a commitment period of five years. Loans can typically be refinanced but the client will need to qualify or re-pay the loan at the end of the term. Back to top.
11) What is the interest rate on the loan?
Every deal is different. The rate will depend on the loan size as well as the client’s financials. The interest rate could be floating, based on Libor + a fixed margin, Prime + a fixed margin or could be fixed for a period of five years. In the current low interest environment, the floating rate loans have a floor rate, which is determined by the size of the annual disbursement. Back to top.
12) What types of collateral does WindCap, LLC necessitate and accept?
We accept the guaranteed cash surrender value of the life insurance policy pledged to the lender as the primary collateral. Outside collateral for the difference between the total outstanding loan amount (up to that point) and the guaranteed Cash Surrender Value of the life insurance policy must be posted in addition. For this necessary second form of collateral, the lender accepts Letters of Credit, cash or marketable securities (If cash or marketable securities it remains where it is currently held and simple pledge agreement is executed.) If a Letter of Credit is chosen the bank issuing it must be well-capitalized and have a minimum credit rating of A1 (by Standard & Poor’s Financial Services) and P1 (by Moody’s Investors Service). Back to top.
13) What are WindCap, LLC requirements of the life insurance company issuing the policy?
From a credit ratings standpoint, the insurance company needs to have a rating of no less than A- by A.M. Best, A- by Standard & Poor’s Financial Services or A3 by Moody’s Investors Service. Back to top.
14) How is WindCap, LLC compensated?
We retain a portion of the interest margin and also a part of the arrangement fee. Back to top.