Challenge

John wanted to create a large, tax-free estate benefit to cover projected estate taxes and leave a meaningful legacy for his heirs. He was willing to commit some cash flow but preferred to keep the bulk of his capital invested in higher-yielding opportunities rather than tie it up in large life insurance premiums.

Solution

• Product Type: Indexed Universal Life (IUL) – Max-Funded, Non-MEC
• Premium Design: $1,000,000 annual premium for 10 years (total $10M policy funding)
• Funding Strategy:
• John contributes $150,000 annually as collateral/cash flow
• Bank loans cover remaining premium each year
• Interest-only payments made from cash flow, with plan to repay loan from policy cash value in years 15+
• Structure: Owned by Irrevocable Life Insurance Trust (ILIT)

Why It Worked

Premium financing allowed John to create a $25M+ death benefit while committing a fraction of the required cash outlay. The arbitrage between borrowing costs (e.g., SOFR + 1.5%) and policy crediting rates (historically 5–7%) made the strategy highly efficient, freeing up more capital for private equity investments.

Outcome

After 15 years, the plan projects to have sufficient cash value to repay the outstanding bank loan, leaving the policy paid-up and producing a significant estate benefit with minimal net out-of-pocket cost. John feels confident knowing his estate taxes can be covered without forcing liquidation of illiquid assets at a discount.