Premium financing has been marketed as a cutting-edge way for high-net-worth individuals and business owners to purchase large life insurance policies—often structured as Indexed Universal Life (IUL) policies. The sales pitch is attractive: borrow money to pay premiums, keep your capital invested, and rely on projected policy growth to cover the cost. But when assumptions fail, this strategy can unravel. One major consequence is Collateral calls.
What Are Collateral Calls in Premium Financing? In premium finance arrangements, a lender provides a loan to pay life insurance premiums. The policy itself, along with other pledged assets, serves as collateral. If the IUL policy underperforms or interest rates rise, the lender may demand additional collateral. These collateral calls can:
• Force the liquidation of investments or real estate.
• Strain cash flow unexpectedly.
• Lead to policy lapses or surrenders.
• Undermine estate and business-succession planning.
What began as a strategy for “free” or “low-cost” life insurance often turns into a financial nightmare.
Why IUL Policies Are at the Center of Disputes Many premium finance cases involve Indexed Universal Life (IUL) policies. These products are marketed as flexible, with the potential for market-linked growth. But they also come with volatility and moving parts:
• Caps and participation rates limit policy growth.
• Cost of insurance charges can increase over time.
• Interest rate fluctuations affect loan performance.
When these factors don’t align with the optimistic projections used at the point of sale, collateral calls are far more likely. When Collateral Calls Lead to Litigation Collateral calls are not always just the result of market shifts. Litigation often arises because:
• Risks were misrepresented in sales presentations.
• Key details about collateral exposure were omitted.
• Advisors may have breached fiduciary duties.
• Lenders structured agreements with unfair terms.
In these circumstances, policyholders may have grounds for a premium finance lawsuit to recover losses or unwind harmful arrangements.
Potential Legal Claims in Premium Finance Disputes Policyholders facing collateral calls linked to financed IUL or other life insurance policies may pursue claims such as:
• Misrepresentation or omission in marketing and projections.
• Breach of fiduciary duty by advisors or trustees.
• Unfair lending practices by financing institutions.
• Negligent structuring of loan or policy arrangements.
Take Action
Unexpected collateral calls don’t have to define your financial future. If your premium-financed life insurance or Indexed Universal Life (IUL) policy has become a source of stress—or if you believe you weren’t fully informed of the risks—you may have legal options.
