Florida Premium Financed Life Insurance Lawyer

Premium financed life insurance can pose serious risks to investors and their families. While these strategies allow some policyholders to obtain coverage with lower out-of-pocket costs, rising interest rates, poor investment elections within the sub-accounts and shifting market conditions can quickly make them unsustainable. This is a complex borrowing arrangement, not a guaranteed financial advantage, and its success depends on many factors outside the policyholder’s control. Unfortunately, some agents and brokers have financial incentives to sell these products without fully disclosing those risks, leaving clients vulnerable to major financial losses.

If you have suffered losses from a premium financed life insurance policy due to undisclosed risks or misrepresentation, you may be entitled to recover your money. Wolper Law Firm is committed to protecting policyholders and holding predatory financial services accountable. With deep experience in premium financed life insurance disputes, we offer a free consultation to discuss whether you may qualify for representation.

How Does Life Insurance Premium Financing Work?

Life insurance premium financing is a strategy that insurance agents use to sell large, permanent life insurance policies at a theoretically lower annual premium price point. Premium financing life insurance strategies are structured so that a third-party lender (i.e., the premium financing company) pays the annual premiums on behalf of the policyholder. The policyholder, in turn, is obligated to pay the premium financing company the accrued interest each year as the premium is paid. At the end of a defined period of time (typically 7-12 years), the life insurance policy is “supposed” to generate positive cash value sufficient to eliminate the premium financing loan and provide additional cash value that can be withdrawn by the policyholder tax-free. In fact, these strategies are often sold as retirement and income strategies that are immune from traditional market risk. Some arrangements involve an irrevocable life insurance trust (ILIT), which may provide estate-planning benefits in certain situations.

Unfortunately, many unscrupulous or uninformed agents present one-sided and incomplete illustrations that fail to disclose the impact of rising interest rates and/or varying levels of policy performance. Performance deviation of either one of these factors can cause the entire premium financing strategy to fail, resulting in large collateral calls from the premium financing company. If those calls are not met by the policyholder adding collateral in the form of securities, cash or other assets, the premium financing company will cease paying premiums and the life insurance policy will lapse. Moreover, the premium financing company will seek to recover unpaid loan amounts from the policyholder. This can cause financial devastation.

Most insurance carriers limit participation in premium financed life insurance transactions to ultra-high net worth individuals, families, business owners and investors. The reason for this is because participants should have ample liquidity outside of insurance policy to handle market fluctuations. Whole Life and Indexed Universal Life (IUL) are the most common insurance vehicles utilized as part of the strategy. Some borrowers can finance up to 90–95% of the premiums, preserving liquidity for other investments. In the event of the insured’s death, collateralized loans may allow families to receive the remaining death benefit, minus the outstanding loan.

Despite the potential benefits, premium financed life insurance transactions are risky and are often presented to clients for which the transactions are unsuitable. Understanding the risks is crucial before investing.

Premium Financed Life Insurance Risks

Some of the many risks and concerns of premium financed life insurance policies include:

• High interest rates: Interest rates have begun to rise steadily since 2022, when the Federal Reserve began a series of hikes to combat inflation. Since March 2022, interest rates have risen 11 times following a period of artificially low rates. Investors who were sold premium financing for life insurance during a season of lower interest rates may now be faced with sticker shock for repayment. The costs of variable-rate loans are especially sensitive to market fluctuations, which investors are not always warned about. Borrowers must be advised about the fact that interest obligations on premium life insurance financing could rise. This can result in higher long-term costs and expenses.
• Market volatility: A life insurance policy’s performance can generate significant risks for the family relying upon it at the end of the holder’s life. Underperformance in terms of cash value, as well as reduced death benefits, both pose serious risks to the insured and their family.
• Collateral calls: Gap collateral calls can put additional assets and holdings at risk. If a policy’s collateral value drops below a certain threshold (which is possible due to the aforementioned market volatility), then the bank or lender may require additional collateral to be assigned.
• Negative arbitrage: Premium financing for life insurance is not “free,” despite overly optimistic assumptions about policy performance, collateral value, and an expectation that interest rates will always be favorable. In fact, life insurance premium financing can result in a net negative effect due to arbitrage. In this scenario, the debt owed on loans to afford the policy outweighs the benefits of holding the policy in the first place.
• Policy lapse or surrender: You can be left without life insurance coverage if you are forced to surrender your policy, or suffer a policy lapse due to too high repayment rates. In the event that the policyholder passes away during this period, the family can expect to receive nothing from the policyholder’s death, despite years of payments made prior.

How Insurance Agents and Brokers Can Exacerbate the Risk

Fraud in life insurance is unfortunately common. According to the Coalition Against Insurance Fraud, insurance fraud costs approximately $308.6 billion annually. Agents and brokers in Florida have a fiduciary responsibility to clients, but they also have an incentive to sell these policies due to the high commissions they can earn.

The larger the policy an agent/broker sells you, the more money they can make. In fact, they may earn more than half of the first year’s premium as commission, and they can receive additional payments each year upon a policy’s renewal. Because of this, an agent/broker may intentionally or unintentionally fail to disclose the true risks of these policies. Often, agents/brokers focus only on how the policy will perform in a “best-case scenario” with the most favorable interest rates, failing to illustrate how it may perform under less-than-ideal conditions.

If you believe that your agent or broker has misled you, there may be options available. Fiduciaries are legally bound to act in their client’s best interests. They cannot prioritize their own commission, time spent on due diligence, or the firm’s reputation for high sales over their client’s needs.

Is it Possible to Recover Life Insurance Premium Financing Losses​?

If your agent or broker breached their fiduciary duty, then you may have options available for recovery. Take the following steps as soon as possible if you believe you have been sold premium financed life insurance without full disclosure of the risks involved.

• Document review: Assemble all of the paperwork available about your life insurance policy, loan assumptions, financing and premium amounts, IUL agreement, gap collateral, and more. If you have written communications between you and your agent, such as text exchanges or email offers, print those out as well. You will need all of this information in order to build a strong case about what you were informed and when about your policy’s financing.
• Consultation: Working with a Florida premium life financed life insurance fraud lawyer is critical for your recovery. Your case hinges upon the fact that you were not fully informed about the risks of your policy. You may have been intentionally misled, or simply sold a policy that does not suit your needs by a fiduciary with a duty to perform due diligence and recommend accurate financial instruments. Because of this, your strongest case comes from a third party with deep experience in Florida premium financed life insurance law. You will need to present the claim in all of its complexities, as well as prove that you did not know and should not have understood the risks involved.
• Litigation or Arbitration: Most claims involving premium financed life insurance policies require a lawsuit to be filed in court. In fewer cases, and only in the event that the parties to the transaction have an arbitration agreement, court may not be an option, and the parties will have to submit to arbitration. Arbitration is a legal alternative that allows you to bring your claim before a one- to three-person panel. Your attorney will gather evidence, present your case, and answer questions on your behalf. At the end of the arbitration process, there are limited grounds for an appeal, but you can receive a fair decision both more swiftly and often at a lower cost than a courtroom trial.

Why Work With a Florida Premium Financed Life Insurance Lawyer at Wolper Law Firm?

The Wolper Law Firm represents investors nationwide in securities/insurance litigation and arbitration on a contingency fee basis. Matt Wolper, the Managing Principal of the Wolper Law Firm, is a trial lawyer who has handled more than 1,000 securities/insurance cases during his career involving a wide range of products, strategies, and securities. Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters. We can be reached at (800) 931-8452 or by email at mwolper@wolperlawfirm.com.

Life insurance fraud is a growing area of concern across the U.S., and it takes a lawyer to hold brokers accountable for the harm they cause to families and individuals. If you need help, contact Wolper Law Firm today for a free, confidential consultation.