Premium financing of life insurance is often effected in connection with the overall estate planning of a HNW individual, and therefore there will be significant attorneys and/or accounting fees and expenses in connection with the overall transaction.

Borrowing for insurance financing may reduce borrowing capacity for other opportunities. Loan collateral will often be required, in addition to pledging the policy. Drops in asset values of the collateral may require the posting of additional collateral.

If collateralis unavailable, further credit may not be extended and the loan may be called.  If the loan cannot be refinanced, the lender may surrender the policy, or the HNW individual will be required to pay premium from out of pocket sources or risk lapse of the policy.

In the long run, the overall costs of premium financing will be higher than paying premiums out-of-pocket.  Lender requirements plus the premium loan and the loan interest due may make this program uneconomical.

In an increasing interest rate environment, the cost of borrowing will be larger thanoriginally projected.

Premium financing designs often rely on illustrated future policy values to repay the outside loan.  If policy values are less than illustrated due to lower dividends, lower credited interest or higher loan rates, there may not be sufficient policy values available to repay the loan in full and out-of-pocket payments may be required.