Life Insurance Premium Financing Carry Cost Calculator
Check the true carry cost of premium financing before signing term sheets. Enter the annual premium you intend to finance, the quoted loan rate, and the policy crediting assumption to see interest expense, crediting growth, and the net drag or arbitrage. Optional fields let you account for collateral pledges and lender fees so you know the cash you must stage outside the policy.
Educational model only. Confirm collateral requirements, tax implications, and carrier illustration assumptions with your advisors before executing a premium financing strategy.
Examples
- $250,000 premium, 7.25% loan rate, 5.50% crediting, 30% collateral, $1,500 fees ⇒ Annual financing interest: $18,125.00 USD • Policy crediting growth: $13,750.00 USD • Net carry cost: $4,375.00 USD • Collateral pledged: $75,000.00 USD • Upfront cash (collateral + fees): $76,500.00 USD • Net carry cost as % of premium: 1.75% • Breakeven crediting rate: 7.25%.
- $400,000 premium, 6.10% loan rate, 7.50% crediting, collateral blank, no fees ⇒ Annual financing interest: $24,400.00 USD • Policy crediting growth: $30,000.00 USD • Net carry cost: −$5,600.00 USD • Collateral pledged: $0.00 USD • Upfront cash (collateral + fees): $0.00 USD • Net carry cost as % of premium: −1.40% • Breakeven crediting rate: 6.10%.
FAQ
What crediting rate should I enter?
Use the insurer's current illustration rate or a stress-tested assumption agreed upon with your advisor. Running multiple scenarios highlights how sensitive the strategy is to policy performance.
Does the calculator include loan amortization?
No. It isolates first-year carry cost. Layer in any scheduled principal repayments or accrued interest that capitalizes back onto the loan when modeling multi-year results.
How do I model lender haircuts on policy cash value?
Reduce the collateral percentage or add external collateral in the optional field to reflect any advance rate limits the lender imposes on policy cash value.
Can I compare multiple loan offers?
Yes. Re-run the calculator with each lender's rate, collateral terms, and fees to see which structure minimizes net carry cost while still meeting estate or liquidity objectives.
Additional Information
- Net carry cost compares annual loan interest with projected policy crediting on the financed premium to show the drag or positive arbitrage in year one.
- Collateral is calculated as a percentage of the financed premium; add additional collateral requirements separately if the lender also liens other assets.
- Breakeven crediting rate equals the financing rate—if policy performance meets or beats the loan rate, the net carry cost shrinks toward zero.
- Upfront cash combines pledged collateral and any one-time fees so you can verify available liquidity outside the policy or trust.