Tuesday, July 29, 2008
Finance For Life Announces New Company Hires
Premium Finance Leader Adds Key Positions To Growing Staff
Memphis, TN, July 29, 2008 – Finance For Life, an industry leader in premium finance since 2005, announced the addition of several new company hires. They are:
Tina England joins Finance For Life as Executive Assistant. She has a strong background in paralegal work and office administration. Ms. England will act as the personal assistant to the President, Ronnie Katz, and will handle most of the duties relating to office management.
Rachel McKinley joins Finance For Life as Case Pricing Specialist. She will handle case pricing, case manager assistance and order specialized reports and records. Ms. McKinley will work under the direction of Gershon Yarmush, Vice President Of Operations for Finance For Life.
According to Ronnie Katz, CPA and President of Finance For Life, “We have seen more cases through the midway point of 2008 than we saw in all of 2007. As a result, we are adding staff to assure efficient operation and case processing.”
About Finance For Life
In addition to the growing staff, Finance For Life continues to add life insurance and financing services to better serve its clients. FFL now offers life insurance sales, case processing, premium financing, case design, and sales assistance. The company works with the most reputable and flexible providers of life insurance loans available to seniors. Finance For Life has brokered nearly 1 billion dollars in death benefit for affluent seniors and their families. Their professional, experienced, and caring team has led to a reputation for exceptional customer service, diligence, and utmost respect for client confidentiality and privacy.
To speak to a representative or to find out more information on premium financing, please contact a representative at Finance For Life:
Phone: 877-763-0098
Email info@financeforlife.com
Tuesday, July 08, 2008
Getting More Sales Milaege With Hybrid Financing
Written by Gershon Yarmush
(Originally published in the July issue of Agent Sales Journal)
Everyone is talking about hybrid premium financing — but what is it exactly, how does it benefit clients, and how do agents sell it? What does hybrid even mean when used in an insurance context? The following is a short explanation of what hybrid premium financing is, how it evolved, and the proper way to sell it.
Understanding the conceptIn order to properly discuss hybrid loans, we need to have a basic familiarity of how the old non-recourse loans worked. Non-recourse loans for life insurance first became mass marketed and popular with the public in early 2001. Agents approached a senior of reasonable health and with assets usually in excess of $5 million and offered to get them a loan for a substantial life policy with no recourse to them. How was this possible? You and I both know that when a bank loans a prospective home buyer hundreds of thousands, if not millions, of dollars for the purchase of a home, they require security — or at least they did before the present sub-prime mess. This security is usually the home that the loan is being made against, with a thorough investigation conducted by the bank to ensure that the home is worth more than the amount they are lending, should the borrower default. Life insurance loans also need the same level of security.
With traditional premium finance insurance loans, which have been around for decades, the collateral is an outside asset, usually a letter of credit, collaterally assigned bank CD, or real estate. In a non-recourse loan, the object of the loan (i.e. the new life insurance policy being purchased), acted as the collateral for the bank. The bank or a premium finance promoter acting for the bank conducted a strict actuarial review to determine the policy’s worth at the loan term period, which was typically two years. By using the term “policy worth,” I am not referring to its cash surrender value or its death benefit, but rather its predicted future settlement value at the two-year mark. This value must be greater than the amount loaned or the collateral is deemed insufficient and the loan is not made.
Sometimes, the collateral value was deemed to be in such excess that an additional loan was made in the form of a cash advance to the borrower. Typically, these transactions also featured no out-of-pocket costs, with all interest and fees rolled into the loan. Needless to say, the math was good and insureds bought in like hot cakes.
However, although sales of this type of insurance product were brisk for several years, in December 2005, sales slowed tremendously and insurers started denying applications. The insurers had several concerns. For one, they felt their products were being sold as free insurance to clients who had no skin in the game and were therefore more likely to let their policies travel to the settlement market. This, they claimed, impacted their lapse ratios. Second, since the funders were not actually collecting fees and interest on these deals upfront from the clients, they felt justified charging a very high interest rate and high fees, as the money would only come out of the profit on a backend sale. Insurers didn’t like the thought of their clients being gouged and felt the steep exit costs would further force more of the paper onto the secondary market. The market got the message and evolved to meet new carrier requirements and continuing demand by developing hybrid premium finance.
What does ‘hybrid’ mean? In an insurance premium finance context, “hybrid” refers to the collateral underlying the loan made to purchase the insurance. In a pure non-recourse transaction, the policy alone serves as the collateral for the loan, while in a hybrid loan, the collateral is supplanted with upfront out-of-pocket interest payments or partial personal guarantees. This “skin in the game” has gone a long way toward assuaging carrier concerns that the insureds lack a personal stake in the policy purchase. Since the clause allowing the client to “walk away from the debt” has been removed, the client will suffer a real financial loss if they do not meet their loan obligation. The matter of the high interest rates and fees has worked itself out, as well, through increased market competition for these loans. Funders who have stayed in and those who entered the market post-2005 have reduced these fees considerably and removed onerous prepayment clauses and restrictive settlement broker “lock-ins” in order to compete with each other. Historically, most of these loans are also based on a simple spread above prime or LIBOR, which right now is quite low. The rates charged on loans today are usually in the 6.5 to 9.5 percent range, as opposed to the 2003-04 era, when they were effectively as high as 16 to 18 percent or more. The evolution of the loans has also included an extension of the loan terms. While the old loans were in force for two years or 30 months, the new loans allow for the original two-year commitment to be extended for up to seven years with some programs, provided that a re-evaluation of the collateral proves it to still be sufficient.
What are the benefits? The purchase of a life insurance policy utilizing a hybrid loan has many benefits to insureds. It allows them to get into a valuable insurance product while they are relatively healthy, with little out-of-pocket expense. This is especially important to “land rich, cash poor” clients who have a well-defined need but poor cash flow.
The collateralization aspect is not as burdensome as a traditional loan because the use of a partial personal guarantee and the policy’s secondary market value do not encumber any other specific assets. The hassle and costs of applying for a letter of credit can be forgone, as well. Hybrid loan terms and documents are extremely client-friendly.
As an agent, there is tremendous profit to be made, as well. These cases are not run-of-the-mill term cases. Each successfully completed case will result in a payout based on the sale of a permanent product, to a senior, in excess of $5 million in face value and with targets ranging from the low end of $150,000 to the high end of $3 million to $4 million, as we have seen on some $60 million face cases on clients in their late 70s to early 80s. Even after the agent splits the commission with the funder and broker, as is required with all hybrid deals, the producer is usually left with a substantial case share of 55 to 70 percent.
Preparing the caseBefore you arrange sales meetings, you have to properly qualify your clients. Most hybrid finance providers are looking for cases on seniors in reasonable health who own policies with face amounts of $5 million or more. While that may seem like a pretty narrow set of criteria, submitting other cases may result in a lot of wasted time, as it can take four to eight weeks just to qualify the case enough for a “no.”
Pros and consWhen you are finally in front of a qualified prospect, you must properly apprise him of the pros and cons. For one, the transaction is by no means free or devoid of risk, and the client will definitely not be receiving any upfront payments. It will be a long process — from the preliminary meeting to final close can be as long as six months, four if you are lucky. It is a shorter-term loan, usually with no out-of-pocket expense, but the options and exit strategies at the end of the term should be discussed, be it loan payoff, refinance or re-evaluation, or posting of additional collateral. Some of your clients may be interested in the secondary market as a liquidation option, but must be warned that if they sell their policy, their capacity to purchase future estate coverage will be jeopardized, as policies count towards insurable capacity no matter who the present owner may be. Of course, a tax professional should be consulted, as well.
Hybrid premium financing is a fancy name for a tool that gives producers access to the high-target, high-face-value senior market. Hybrids are also a great way for seniors to get a large policy started with low startup costs and low risk to their existing capital and should be considered by advisors in the planning process.
Gershon Yarmush is vice president of operations for Finance for Life LLC. He can be reached at 901-763-0098 or by email: info@financeforlife.com.
(Originally published in the July issue of Agent Sales Journal)
Everyone is talking about hybrid premium financing — but what is it exactly, how does it benefit clients, and how do agents sell it? What does hybrid even mean when used in an insurance context? The following is a short explanation of what hybrid premium financing is, how it evolved, and the proper way to sell it.
Understanding the conceptIn order to properly discuss hybrid loans, we need to have a basic familiarity of how the old non-recourse loans worked. Non-recourse loans for life insurance first became mass marketed and popular with the public in early 2001. Agents approached a senior of reasonable health and with assets usually in excess of $5 million and offered to get them a loan for a substantial life policy with no recourse to them. How was this possible? You and I both know that when a bank loans a prospective home buyer hundreds of thousands, if not millions, of dollars for the purchase of a home, they require security — or at least they did before the present sub-prime mess. This security is usually the home that the loan is being made against, with a thorough investigation conducted by the bank to ensure that the home is worth more than the amount they are lending, should the borrower default. Life insurance loans also need the same level of security.
With traditional premium finance insurance loans, which have been around for decades, the collateral is an outside asset, usually a letter of credit, collaterally assigned bank CD, or real estate. In a non-recourse loan, the object of the loan (i.e. the new life insurance policy being purchased), acted as the collateral for the bank. The bank or a premium finance promoter acting for the bank conducted a strict actuarial review to determine the policy’s worth at the loan term period, which was typically two years. By using the term “policy worth,” I am not referring to its cash surrender value or its death benefit, but rather its predicted future settlement value at the two-year mark. This value must be greater than the amount loaned or the collateral is deemed insufficient and the loan is not made.
Sometimes, the collateral value was deemed to be in such excess that an additional loan was made in the form of a cash advance to the borrower. Typically, these transactions also featured no out-of-pocket costs, with all interest and fees rolled into the loan. Needless to say, the math was good and insureds bought in like hot cakes.
However, although sales of this type of insurance product were brisk for several years, in December 2005, sales slowed tremendously and insurers started denying applications. The insurers had several concerns. For one, they felt their products were being sold as free insurance to clients who had no skin in the game and were therefore more likely to let their policies travel to the settlement market. This, they claimed, impacted their lapse ratios. Second, since the funders were not actually collecting fees and interest on these deals upfront from the clients, they felt justified charging a very high interest rate and high fees, as the money would only come out of the profit on a backend sale. Insurers didn’t like the thought of their clients being gouged and felt the steep exit costs would further force more of the paper onto the secondary market. The market got the message and evolved to meet new carrier requirements and continuing demand by developing hybrid premium finance.
What does ‘hybrid’ mean? In an insurance premium finance context, “hybrid” refers to the collateral underlying the loan made to purchase the insurance. In a pure non-recourse transaction, the policy alone serves as the collateral for the loan, while in a hybrid loan, the collateral is supplanted with upfront out-of-pocket interest payments or partial personal guarantees. This “skin in the game” has gone a long way toward assuaging carrier concerns that the insureds lack a personal stake in the policy purchase. Since the clause allowing the client to “walk away from the debt” has been removed, the client will suffer a real financial loss if they do not meet their loan obligation. The matter of the high interest rates and fees has worked itself out, as well, through increased market competition for these loans. Funders who have stayed in and those who entered the market post-2005 have reduced these fees considerably and removed onerous prepayment clauses and restrictive settlement broker “lock-ins” in order to compete with each other. Historically, most of these loans are also based on a simple spread above prime or LIBOR, which right now is quite low. The rates charged on loans today are usually in the 6.5 to 9.5 percent range, as opposed to the 2003-04 era, when they were effectively as high as 16 to 18 percent or more. The evolution of the loans has also included an extension of the loan terms. While the old loans were in force for two years or 30 months, the new loans allow for the original two-year commitment to be extended for up to seven years with some programs, provided that a re-evaluation of the collateral proves it to still be sufficient.
What are the benefits? The purchase of a life insurance policy utilizing a hybrid loan has many benefits to insureds. It allows them to get into a valuable insurance product while they are relatively healthy, with little out-of-pocket expense. This is especially important to “land rich, cash poor” clients who have a well-defined need but poor cash flow.
The collateralization aspect is not as burdensome as a traditional loan because the use of a partial personal guarantee and the policy’s secondary market value do not encumber any other specific assets. The hassle and costs of applying for a letter of credit can be forgone, as well. Hybrid loan terms and documents are extremely client-friendly.
As an agent, there is tremendous profit to be made, as well. These cases are not run-of-the-mill term cases. Each successfully completed case will result in a payout based on the sale of a permanent product, to a senior, in excess of $5 million in face value and with targets ranging from the low end of $150,000 to the high end of $3 million to $4 million, as we have seen on some $60 million face cases on clients in their late 70s to early 80s. Even after the agent splits the commission with the funder and broker, as is required with all hybrid deals, the producer is usually left with a substantial case share of 55 to 70 percent.
Preparing the caseBefore you arrange sales meetings, you have to properly qualify your clients. Most hybrid finance providers are looking for cases on seniors in reasonable health who own policies with face amounts of $5 million or more. While that may seem like a pretty narrow set of criteria, submitting other cases may result in a lot of wasted time, as it can take four to eight weeks just to qualify the case enough for a “no.”
Pros and consWhen you are finally in front of a qualified prospect, you must properly apprise him of the pros and cons. For one, the transaction is by no means free or devoid of risk, and the client will definitely not be receiving any upfront payments. It will be a long process — from the preliminary meeting to final close can be as long as six months, four if you are lucky. It is a shorter-term loan, usually with no out-of-pocket expense, but the options and exit strategies at the end of the term should be discussed, be it loan payoff, refinance or re-evaluation, or posting of additional collateral. Some of your clients may be interested in the secondary market as a liquidation option, but must be warned that if they sell their policy, their capacity to purchase future estate coverage will be jeopardized, as policies count towards insurable capacity no matter who the present owner may be. Of course, a tax professional should be consulted, as well.
Hybrid premium financing is a fancy name for a tool that gives producers access to the high-target, high-face-value senior market. Hybrids are also a great way for seniors to get a large policy started with low startup costs and low risk to their existing capital and should be considered by advisors in the planning process.
Gershon Yarmush is vice president of operations for Finance for Life LLC. He can be reached at 901-763-0098 or by email: info@financeforlife.com.
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