Cash surrender value (CSV) lending is a specialized field, and within it the Immediate Financing Arrangement (IFA) is one of its most sophisticated strategies. That’s why selecting the right IFA provider is critical.
First, the basics. With an IFA, your client enters into a contract for a permanent life insurance policy, which creates significant CSV in the policy’s early years. The policy (and depending upon the IFA structure, the ancillary collateral) is assigned to Manulife Bank as collateral to secure a credit facility.
Your client pays the annual recurring insurance premium and borrows an amount equivalent to 100% of the CSV. (Clients can also borrow an amount equivalent to the entire premium by providing additional collateral security). IFA clients use the credit facility to fund an operating business, purchase real estate or invest in a non-registered investment portfolio. When the life insured passes away, the outstanding loan is repaid from the insurance proceeds, with the remaining amount paid to the named beneficiary (ies) under the policy.
IFA clients must be able to afford the significant premiums that large policies often require and be able to manage the complexity of this strategy.
IFAs are a core business for Manulife Bank
When structuring an IFA for a client, rates often come to the fore of the discussion. At Manulife Bank, our pricing is based on the prime lending rate and, generally speaking, we often can offer lower rates for larger cases. However, rates are only one piece of the puzzle. It’s in your interest as an advisor, and in your clients’ interest, to think carefully about the provider – beyond just the lowest rate.
Why? Think of the advantage of working with lending professionals who specialize in IFAs. We pioneered this strategy and brought it to market in 1995. We’re a bank owned by an insurance company, so the IFA is a core and consistent business for us and a key contributor to our success.
Typically, IFAs are structured in one of three ways – borrowing an amount equivalent to: 100% of the cash value, 100% of the premium, or 100% of the premium and borrowing an amount equal to the net interest paid during the year. But we also work with customized IFAs all the time.
Sometimes, for instance, we see advisors whose clients want to borrow an amount equivalent to 75% of the cash value or 80% of the premium. At Manulife Bank, we have the experience to ask the right questions, and try to accommodate whatever structure the advisor would like to put in place to make the IFA work best for the client. We can help you put together an IFA.
From a product differentiator perspective, we do 10-year underwriting. Other lenders tend to do 2-3 years, requiring more frequent approvals. We also have an extensive list of insurance carriers that we work with, and they know us as a lender.
Not many lenders know IFAs the way we do. That understanding is integrated across the organization, from our salespeople to our loan adjudicators to our risk management specialists.
With the volume of IFAs we’ve worked on over many years, we can also counsel advisors. Whether you’re just starting to see the value of incorporating IFAs into your practice or an expert in leveraging this strategy, we can speak your language. We are a lender that also understands insurance.
Working in partnership
As part of the process, we put a priority on ensuring an understanding of the big picture and covering all angles. We can recommend the experts to bring into the IFA strategy from the beginning, e.g., tax professional, accountant and lawyer, along with Manulife Bank. The best client experiences come when people work together in partnership.
We recognize that the advisor is driving the business. While we bring the IFA expertise, we respect the advisor-client relationship and will help you fulfill your plan to serve your clients best.