Consider your high-net-worth clients, people who you’d advise to have permanent life insurance. They can afford the premiums but don’t want to tie up their cash in that way. These clients have other opportunities in mind.
With an Immediate Financing Arrangement, they can take advantage of these opportunities, plus secure that needed insurance policy. Clients pay the premium, and once the policy is in force, we release up to the full premium amount back to them.
Clients can now use that cash for any purpose. Their only obligation? Pay interest monthly on the IFA advance. Repaying the full amount is open at any time. Any outstanding loan is repaid out of the death benefit, with the remaining proceeds paid to the beneficiaries.
For advisors, an IFA serves multiple purposes. It can overcome price objections and help deliver the needed insurance solution. It can be a tax strategy: if the funds are used to generate income, clients can often deduct the interest*. It’s also a valuable cash flow planning tool. We can help you put together an IFA.
Who can benefit from an IFA?
An IFA offers clients endless flexibility. They can apply the cash for any number of purposes, including growing their investment portfolio, funding an operating business or purchasing real estate.
Some clients use the IFA to make a charitable gift without adversely affecting their cash flow or capacity to purchase an investment. Others use a Corporate IFA to increase the size of their Capital Dividend Account (CDA).
To imagine even more possibilities, here are a few actual examples from Manulife Bank.
We have a client who is a wealthy auto parts manufacturer with rising income in his operating company, which he planned to leave to his son. To address capital gains that would be triggered upon this client’s death, the advisor recommended a permanent life insurance policy. The company generated sufficient cash flow to pay the premiums. However, the client needed those funds to modernize his factory.
Here, Manulife Bank issued a discussion paper in a matter of days, and the client’s accountant reviewed and supported the structure. The IFA was then put in place and the client was able to both obtain the permanent life insurance he needed and invest in the factory upgrades.
In another instance, a doctor and her husband wanted to create an estate for their children via a permanent life insurance policy to be owned by the doctor’s corporation. The doctor’s holding company includes real estate. She used the IFA proceeds to acquire more properties. When the time comes, the death benefit and CDA of the life insurance contract will allow the disposition of the real estate to be handled as efficiently as possible.
The client first approached two other banks to secure an IFA. With one, their minimum loan size was too high. With the other bank, their approved life insurance carrier list was limited. Manulife Bank, on the other hand, has a lower minimum loan size and a wider range of approved life insurance carriers. As a result, the client was able to put the IFA in place with the insurance carrier her advisor recommended, and the premium amount that was right for her.
Presenting the IFA option adds value to your client relationships. It shows that you care about both the insurance your clients need and their overall financial plan.
By taking a holistic approach to your clients’ cash flow and their business, you can help them open up any number of financial opportunities. How should you present an IFA to your clients? I’ll discuss that in the next edition of this specialized lending series.