IFA - Immediate Financing Arrangement
Do any of the below resonate with you?
- I hold traditional investments inside my holding/operating company
- I am looking to diversify my holdings towards an alternative tax advantaged asset class
- I want to increase the internal rate of return on my estate plan.
- I want to maximize the Capital Dividend Account balance (corporate IFA).
- I have an existing permanent insurance plan with cash value and want access today.
- I want to set up a charitable giving strategy without affecting cash flow.
This is a sophisticated strategy for high-net-worth individuals or corporations that involves leveraging your permanent insurance plan so annual cash flow is not adversely affected.
100% Cash Surrender Value Lending
With this strategy, you borrow only 100% of the CSV of a policy each year which is, of course, less than the premium payment. The advantage to this structure is that the CSV of the policy creates a rapidly increasing borrowing capacity over time. The drawback is that there is a significant net funding requirement from you in the early years of the policy.
100% Replacement of Premium
With this strategy, you pay the annual premium then provide extra collateral security – in addition to the CSV of the policy – in order to borrow back 100% of the premiums each year. The advantage of this structure is that you experience only a modest net cash outflow (net annual interest costs) in comparison to the death benefit, which increases the rate of return of the structure. The drawback is the requirement to provide additional collateral security. (However, the additional collateral security requirement may well fall and eventually disappear over time.)