Insurance Curator High-net-worth (HNW) estate planning that uses large life insurance policies and premium financing requires rigorous due diligence on both the insurer and the lending partner. This checklist is tailored to U.S. families and advisors working on multi-million‑dollar wealth-transfer and tax-mitigation structures in major markets such as New York City, San Francisco, Los Angeles, Miami, and Houston. Use this as a practical roadmap during vendor selection, RFPs, and final underwriting decisions.
Why this matters for HNW estate planning
- Large policies (often $5M–$500M+) are complex: product design, underwriting, trust funding, and loan mechanics interact.
- A weak insurer or lender choice raises credit, execution, tax, and reputation risks that can undermine the plan.
- Proper due diligence reduces the chances of coverage gaps, loan covenant breaches, future litigation, and unfavorable tax outcomes.
Quick summary checklist (at-a-glance)
- Insurer: financial strength, product fit, underwriting flexibility, claims-paying history, policy forms, COI structures, secondary guarantees.
- Lender: credit terms, covenant structure, pricing mechanics, recourse vs non‑recourse, liquidity backup, counterparty credit risk.
- Operational: escrow/closing mechanics, collateral valuations, trustee/law firm integration, reporting and governance.
- Legal/Tax: opinion letters, trust design compatibility, state‑specific premium tax and transfer rules (NY, CA, FL, TX variations).
- Governance: monitoring plan, policy audits, contingency triggers, replacement and buyout mechanics.
1. Insurer due diligence — deep dive
A. Financial strength & reputation
- Verify ratings from multiple agencies (AM Best, S&P, Moody’s). For multi-million-dollar plans, target insurers rated A or better.
- Check the insurer’s balance-sheet scale for large death benefit commitments; consider reinsurer relationships.
B. Product suitability & historical performance
- Confirm the insurer offers products that match the client’s objectives:
- Guaranteed UL / GUL for longevity of death benefit.
- Indexed/Variable UL for cash value accumulation with risk tolerances.
- Survivorship (second-to-die) policies for estate tax strategies.
- Request historical cost of insurance (COI) illustrations and sensitivity runs.
C. Underwriting flexibility & exceptions
- Ask about:
- Preferred underwriting classes and availability for older ages.
- Table reduction practices, AVS (attending physician statements) policies, and HIV/hearing test protocols.
- Mortality credits and product-specific underwriting credits.
D. Policy forms, riders, and legal language
- Obtain sample policy contracts and common riders (accelerated death benefit, disability waiver, secondary guarantee).
- Check definitions for “incontestability,” misstatement clauses, suicide periods, contestable periods for large face amounts.
E. Claims-paying & servicing record
- Ask for recent claims examples on large policies and average claim settlement timeframes.
- Serviceability matters for policy loans, premium credits, and large beneficiary pay-outs.
Suggested insurer names for RFPs: New York Life, MassMutual, Pacific Life, Prudential, North American. Review each firm’s product pages for minimum face amounts and product capabilities (e.g., New York Life: https://www.newyorklife.com).
2. Lender due diligence — deep dive
A. Credit terms & pricing
- Request sample term sheets for:
- Interest rate structure (fixed vs variable; e.g., Prime-based or LIBOR/SOFR spreads).
- Typical spreads and floor rates.
- Upfront fees (commitment fees, origination, legal).
- Indicative market context: premium finance lending spreads in recent years have varied; institutional private banks (e.g., Bank of America Private Bank) often price competitively but require high documentation and relationship metrics (see https://privatebank.bankofamerica.com).
B. Loan structure & recourse profile
- Confirm whether loans are:
- Full recourse (borrower personally liable)
- Non-recourse (limited to collateral; rare for large financings)
- Limited recourse (hybrid)
- Review guaranty, deficiency, and cross-default provisions.
C. Collateral valuation & LTV
- Get the lender’s maximum loan-to-value (LTV) on in-force and single-premium policies; LTVs commonly range from 50%–80% depending on policy type and insurer.
- Ask how collateral is revalued and margin call triggers are calculated.
D. Covenant regime, margin calls, and cure mechanics
- Inspect covenant floors and triggers (e.g., loan-to-cash-value, S&P downgrade triggers).
- Understand timing and cure periods for margin calls and whether forced liquidation is permitted.
E. Operational integration & settlement
- Does the lender integrate with trustee, broker, and insurer for direct premium payments, collateral control, and custodial accounts?
- Confirm closing timelines and liquidity backstops.
Typical lender names to include in RFPs: Bank of America Private Bank, Goldman Sachs Private Wealth, RBC Wealth Management, Wells Fargo Private Bank. These organizations publish private-banking and lending guidelines on their sites (e.g., https://privatebank.bankofamerica.com).
3. Legal, tax, and regulatory checks
- Obtain tax and legal opinion letters covering:
- Transfer-for-value rules, incident of ownership, estate inclusion risks.
- State premium tax and policy transfer consequences (NY and CA have specific premium tax regimes that may affect pricing).
- Confirm trust design compatibility (Irrevocable Life Insurance Trusts — ILITs) and funding timing.
- Ensure anti-money‑laundering (AML) and beneficial ownership checks are feasible for the client’s jurisdictions and asset structures.
4. Operational & governance checklist
- Documented onboarding process: underwriting timelines, required labs/tests, APS ordering, and expected issue ages.
- Custodial arrangements and trustee instructions for premium payment flows.
- Ongoing reporting cadence: quarterly policy admin statements, loan amortization schedules, covenant testing, and valuation updates.
- Defined escalation and replacement paths if insurer or lender conditions become untenable.
See related operational guidance: Onboarding Process for HNW Insurance Plans: Client Discovery, Underwriting, and Timing.
5. Pricing examples & market context (indicative)
Note: large-policy pricing depends materially on age, gender, health, product type, underwriting class, and market rates. Below are indicative ranges to help frame RFP expectations (use only for planning; obtain firm illustrations):
| Item | Indicative range (U.S., 2024 context) |
|---|---|
| Premium finance interest rates (variable) | ~6%–9% (Prime/SOFR + spread; depends on lender/credit) see Fed funds history |
| LTV on high-quality UL policies | 50%–80% depending on product/insurer |
| Minimum face amounts commonly required for premium finance | $5M–$25M (larger lenders often prefer $25M+) |
| Illustrative annual targeted premium for a $50M UL (age 55 male) | $300k–$1.2M (wide range; product-dependent) |
For precise, binding pricing: obtain illustrations directly from insurers and term sheets from lenders in the client’s state (NY, CA, FL, TX).
6. Red flags to watch for
- Insurer rated below A- by AM Best for multi‑decade guarantees.
- Lender requiring unusually short cure periods or immediate forced liquidation on downgrade.
- Nontransparent fee schedules or undisclosed broker compensation.
- Policy forms with ambiguous contestability or material misstatement language.
- Reliance on verbal promises rather than written, signed term sheets and trustee/escrow agreements.
See more on identifying misaligned incentives: Red Flags in Advisor Selection: Avoiding Misaligned Incentives in Insurance Sales to HNW Clients.
7. Vendor selection and RFP tips
- Issue a structured RFP to insurers and banks that requests:
- Sample policy forms, rider language, COI sensitivity tables.
- Firm commitment letters for specific face amounts and assumed underwriting classes.
- Full loan term sheet with pricing, LTV, covenants, and collateral mechanics.
- Include service-level expectations for trustee interactions, premium remittance, and policy administration.
- Compare total cost of ownership: premiums + financing costs + fees + tax implications over 10–30 year projections.
For guidance on probing vendors for PPLI and premium financing, see: Vendor Selection for PPLI and Premium Financing: What to Probe During RFPs.
Closing action steps (for advisors)
- Gather insurer ratings, product forms, and 10‑year illustrations.
- Request lender term sheets for at least three banks/finance houses.
- Assemble legal/tax counsel to draft opinion letters and confirm trust compatibility.
- Schedule a multidisciplinary vendor review with the client: underwriting lead time, closing timeline, and contingency waterfall.
Related implementation and governance content: Implementation Roadmap: From Policy Selection to Trust Funding and Ongoing Governance.
Sources & further reading
- Federal Reserve — Effective Federal Funds Rate (historical context on interest-rate environment): https://fred.stlouisfed.org/series/FEDFUNDS
- Bank of America Private Bank — Private lending and trust services overview: https://privatebank.bankofamerica.com
- New York Life — Product and large-case capabilities: https://www.newyorklife.com