Which statement about premium finance is false?

Which statement about premium finance is false?

• A. It is borrowing to pay premiums; the insured owes interest.
• B. It involves no interest and is paid entirely by the policyholder from the start.
• C. It is commonly used by high-net-worth individuals to fund premiums.
• D. It can involve collateral or credit checks by the lender.

Answer: (B)

Premium financing is a way to fund life insurance premiums by borrowing from a lender, with the loan typically secured by the policy’s death benefit or cash value. The borrower owes interest on that loan, and lenders may require collateral and credit checks. This strategy is often used by high‑net‑worth individuals to preserve liquidity while maintaining large premium payments. The statement claiming there is no interest and that the policyholder pays the premium entirely from the start is false because the essence of premium financing is borrowing to cover the premium and repaying that loan with interest. Funds come from the lender to pay the premium, and interest accrues on the borrowed amount, rather than the policyholder paying everything upfront without interest.

Premium financing is a way to fund life insurance premiums by borrowing from a lender, with the loan typically secured by the policy’s death benefit or cash value. The borrower owes interest on that loan, and lenders may require collateral and credit checks. This strategy is often used by high‑net‑worth individuals to preserve liquidity while maintaining large premium payments.

The statement claiming there is no interest and that the policyholder pays the premium entirely from the start is false because the essence of premium financing is borrowing to cover the premium and repaying that loan with interest. Funds come from the lender to pay the premium, and interest accrues on the borrowed amount, rather than the policyholder paying everything upfront without interest.