Do you want to offer life insurance premium financing to your new and existing clients? If so, first you will need to know the steps involved in a premium finance transaction and where you may need to engage additional services.
WHAT DOES A PREMIUM FINANCE BROKER DO?
A premium finance broker works with agents who wish to offer premium financing to their clients by taking care of the back office work and obtaining offers for financing. Premium finance brokers maintain close relationships with the various premium finance companies and usually obtain many different offers for financing on a single policy in order to get the best offer available for potential clients. Once all the financing offers have been collected, the broker will work with the agent a client to secure the new policy, execute the financing agreement and finalize the transaction. The selected program (or lender) will then begin to make the premium payments on the newly issued policy.
WHAT ARE ALL THE SETPS AND WHO DOES WHAT?
While each premium financing program is unique, most commonly they all follow the same required transaction steps with little variation.
A. New Business (Performed by Agent):
The agent will discuss the option of life insurance premium financing with potential or existing clients. If the client(s) is interested in obtaining offers for financing on a new life insurance policy, the agent will work with them to determine suitability. Should the client be a candidate for available programs, the agent and client will fill out an application for financing, insurance application(s) and sign a HIPPA release (to obtain medical records for the underwriting process).
- Discuss premium financing with clients
- Determine suitability
- Fill out application for financing
- Fill out new insurance policy application(s)
- Sign HIPPA release
B. Underwriting (Performed by Broker):
With all applications filled out and releases signed, the premium finance broker (in some cases the agent) will begin to obtain the client(s) medical records in order to solicit new policy offers from various insurance carriers and to obtain required third party underwriting reports (Life Expectancy Evaluations) required by the financing companies.
- Obtain client's medical records (usually for the past five years)
- Submit applications to insurance carriers and obtain new policy offers
- Obtain underwriting (LE) reports
C. Pricing (Performed by Broker):
Once all medical records, policy offers and life expectancy reports have been obtained by the agent or broker, the premium finance broker will solicit offer for financing on a new policy from a variety of premium finance companies (lenders). As the offers are collected the broker will keep the client appraised of offers received and will work with the potential lenders to obtain the best offers possible. With final offers collected the broker will present all offers to the agent (and may make a recommendation as to which is the best offer) for presentation to the agent's client(s).
- Solicit financing offers
- Offers are evaluated, revised offers may be requested based on lender competition
- Final offers are collected and presented to the agent
- Top and most appropriate offers recommended
D. Contracting (Performed by Agent and Broker):
Should the client(s) wish to accept an offer for financing from one of the premium finance companies, the broker will instruct the selected lender to issue the financing documents. At the same time, the broker will submit the formal application for insurance to have the policy issued to the client(s) along with setting up an Irrevocable Life Insurance Trust (ILIT) for which the policy will be issued to.
- Broker requests financing agreement from lender of client's choice
- Formal insurance application is filled out by client and submitted by broker to insurance company
- Broker works to establish trust (ILIT) for policy issue
E. Closing (Performed by Agent and Broker):
Once the policy has been issued to the newly created ILIT, the broker will deliver to the agent the final financing agreement (with the new number and date) along with the new policy. The broker and agent will work with the client to execute the financing agreement and answer any questions the client may have. With the agreement executed the broker will return the completed documents to the lender for final execution by the lending party.
- Broker delivers final financing agreement and policy
- Client executes financing agreement
- Broker delivers to lender executed agreement and all delivery requirements
F. Funding (Performed by Broker):
Delivering the executed agreements and additional documentation to the lender, the broker receives final copies of all executed documents and delivers them to all parties involved. The lender then makes the first premium payment on behalf of the client. Future premiums will be paid by the lender for the length of the premium financing agreement.
- Broker distributes finalized executed agreements to all parties
- Lender makes first premium payment
- Lender makes future premium payments according to the financing agreement
HOW DO I CHOOSE A BROKER?
If you wish to engage the services of a premium finance broker in order to offer life insurance premium financing to your clients one of the most important things to consider is a potential brokers business practices, reputation and the number of premium finance companies they work with. While theoretically any broker can provide services relating to premium financing, there are only a limited number of brokers who actually work with most every premium finance company in the marketplace which enables you to offer your clients the best possible financing offers and programs available. Also, the broker should be licensed in every state in the US that requires a premium finance license to conduct transactions.