Premium financing is often marketed as a smart way to buy life insurance. The pitch is appealing: borrow from a bank to pay premiums, keep your money invested, and let the policy “pay for itself.” But the reality is very different — and many lawsuits have arisen when these strategies go wrong.

Here are four truths every buyer should know:

1. It’s Not Free Insurance

Premium financing means taking on a loan, with interest, collateral, and repayment obligations. Rising rates, market downturns, or policy underperformance can quickly turn “free” coverage into a financial burden.

2. If You Can’t Afford It Without Financing, Don’t Do It

Borrowing to cover premiums you could not otherwise afford to pay is a red flag. If you wouldn’t be comfortable paying the premiums directly, you shouldn’t finance them.

3. It’s Not a Retirement Plan

Life insurance provides protection first. Using premium financing to try to fund retirement is risky and often unsuitable.

4. It’s Not a Reason to Overbuy Coverage

Bigger policies mean bigger loans, higher interest and more risk. Buy the right amount of coverage for your needs — not the maximum a financing program suggests.

Bottom Line . . .

Premium financing may have a place for certain high-net-worth individuals with strong liquidity. For most, it creates more risk than reward. If someone tells you it’s “free,” be skeptical.

Sarraf Gentile LLP represents policyholders in disputes over life insurance and premium financing. If you’re facing unexpected collateral calls, lapses, or misrepresentations about a financed policy, we can help.