Jumbo life insurance has emerged as one of the more interesting – as well as lucrative – products for all players operating within the GCC private banking industry.
There are clear reasons for the growth of this product category: an increase in its acceptance by private banks and wealth advisers as a core component of a comprehensive wealth and estate planning; the opportunity to leverage cash flow to provide liquidity via premium finance; and the growing need to supplement and replace other declining revenue sources.
We believe that most of the major international banks in Asia have seen a tenfold increase in that business over the last three to five years.
With jumbo universal life policies, commissions for the banks creates another revenue stream and the asset base is generally invested wisely.
Jumbo universal life insurance policy coverage amounts typically fall in the US$1 million to US$5 million range when first sold. Since 2008, an increasing share of policies fall in the US$5 million to US$20 million range.
The past 12 to 18 months have seen increased acceptance of what we call “true” jumbo policies – of US$50 million and above in addition to which these are not always syndicated anymore; there is now demand for single carriers that can offer these large policies.
There are great advantages to investing in a high value life policy with premium financing, some are listed below
- Eliminates the requirement for a large up-front payment to an insurance company.
- Multiple insurance policies can be attached to a single premium finance contract, allowing for a single payment plan to cover all insurance coverage.
- Premium financing is often transparent to the individual or company insured. Brokers transmit the completed premium finance agreement to the premium finance company, and the policy holder is billed as they would be for any other typical insurance policy.
- Allows for clients to obtain needed coverage without liquidating other assets.
The main benefit in premium financing is the avoiding the opportunity cost in paying out of pocket. By using other people's money (leveraging a lender's capital), clients can retain a significant amount of capital known as retained capital
Typical client profile: Age 29 to 75; Net Worth $5MM or greater; Business-owner, entrepreneur, professional; Desire to retain capital whilst maximizing wealth transfer & potential tax-free retirement
We think that is certainly the way the industry is going to evolve and invest.