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Premium Financing

This document discusses premium financing of life insurance policies. Some key points: - Premium financing allows investors to finance insurance premium payments over time through a financial institution at an interest rate, rather than paying the full premium up front. - A case study shows financing $15.04 million in premiums over 12 years for a policy that would return $43.06 million after 50 years. - The document explores structuring the financing through a US financial institution, with the premium paid annually to the insurer and interest serviced by the investor's global business. - Key implications include individual remittance limits to India and tax treatment of proceeds depending on if the payout is received in India or outside

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S.Guru Prasad
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68 views

Premium Financing

This document discusses premium financing of life insurance policies. Some key points: - Premium financing allows investors to finance insurance premium payments over time through a financial institution at an interest rate, rather than paying the full premium up front. - A case study shows financing $15.04 million in premiums over 12 years for a policy that would return $43.06 million after 50 years. - The document explores structuring the financing through a US financial institution, with the premium paid annually to the insurer and interest serviced by the investor's global business. - Key implications include individual remittance limits to India and tax treatment of proceeds depending on if the payout is received in India or outside

Uploaded by

S.Guru Prasad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Premium

Financing
December 2020
Background
• Premium refinancing is a common concept in USA and countries in Europe wherein the
Insurance (Annuity based Life insurance) policy would be financed by financial institutions for a
charge of interest

• The insurance products available in US carry higher returns compared to the annuity policies
available in India. Further, the lower interest rates of US market makes the investment in
insurance products further attractive

• In the case study, we understand that for a life insurance premium of USD 15.04 million
payable over a period of 12 years, the return would be as high as USD 43.06 million at the end
of year 50

• The key aspect of the model is that the premium would be financed by a financial institution
and the repayment of such financing would be done through the cash value in the annuity
policy

• The net cost to the investor would be USD 6.32 million payable towards Interest for financing

• In the next slides, we discuss the feasible structures for achieving this objective for an investor
in India

2
Structure Dynamics
Annuity Value

• Financial institution in the US to premium finance the premium portion of the


annuity plan on behalf of the Promoters
Promoters
• Premium to be paid on a year on year basis to the Insurance Company by the
financial institution
Insurance Product
• The interest on the financing to however be serviced by the Promoters and their
Global business.

Financing
Premium
– Individual remittance under LRS limited to USD 250,000 per annum

India Business
• At the end of the investing period, the Promoters to commute the annuity plan
and settle the loan outstanding from the financial institution

• The proceeds of the annual plan to accrue to the Promoters at the end of the
tenure
Interest
Payment

Global Business Financial Institution

3
Structure Dynamics
Annuity Value

Key Implications

• Limit on individual remitting foreign currency restricted to USD 250,000. The


Promoters
interest payouts to be structured by a combination of Individual and Global
business
Insurance Product
• Restriction on investing in pure play insurance products. Approval from the RBI
is required for holding a life insurance from an Insurer outside under the Master
Directions for Insurance

Financing
Premium
India Business • Proceeds from payment will be taxed if received in India. The payouts to be
received outside India, as a non-resident.

• If the product is structured as an insurance product, proceeds would be exempt


under Section 10(10D) of the Income Tax Act.
Interest
Payment

Global Business Financial Institution

4
Thank You

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