What is Jumbo Life Insurance? How it works?
Jumbo Universal Life insurance policies?
Jumbo life insurance is designed for High net worth Individuals and Ultra net worth Individual, with large amount of cover will be given. These Jumbo Universal Life Insurance policies the minimum cover starts from USD1Million cover to USD5million Cover and above.
In general Jumbo life insurance is designed for high net worth individuals to meet their needs as below:
Who will be eligible for Jumbo Universal Life insurance?
High Net Worth (HNW) & Ultra High Net Worth (UHNW) individuals
Net Worth (Assets – Liabilities) of US$ 5 Million & above
Managed portfolio of US$ 1 Million & above in Bonds & Equities
Plan over view:
1. Large amount of Life Insurance
2. Whole of Life cover
3. Single Premium
4. Minimum ‘Guaranteed Annual Returns’ for Life
5. Cash Value Accumulation
6. Partial or Full encashment
7. Policy Loan
- Premium Financing
In Jumbo insurance plans have different flexible options in premium payment, either client can pay premium as a lump sum or regular premiums, usually premium are very high since coverage also very high, also there is an option of premium financed by the bank, in case client wants funding for the premium. This plan has both component life insurance and Guaranteed investment.
Most of the Small business entrepreneurs, if they are looking for more than 5million cover, they ideally choose Jumbo insurance plans as Key Man Insurance. Key person in the business who is always owner of the company most of the cases.
How does the premium-financing work by the bank Under Jumbo life insurance policies?
Once the Premium Financing loan has been paid off, the assigned policy will be returned to the policyholder.
1. Interest rate risk – risk of unexpected increasing costs of interest payments. Please be aware that interest rates may rise, which could increase costs of servicing the loan, and therefore reduce the rate of return of the insurance policy. The actual initial interest rate applicable will be determined on the day of loan drawdown.
You should factor in this possibility when considering whether this arrangement is suitable for you.
2. Collateral top-up risk – risk of the ratio of outstanding loan value to the current surrender value (“the LTV ratio”) exceeds 90%, the borrower will be required to provide additional securities or reduce the outstanding loan. Collateral top-up is likely to be required if there are unfavourable movements of the interest rate / crediting rate for the underlying policy and the policy account value is earning at a rate insufficient to cover all charges related to the policy and in that case, the outstanding loan may exceed 90% of the current surrender value.
3. Counterparty risk – If the relevant credit rating of the insurance company for the underlying insurance policy is downgraded, the Bank shall reserve the right to review the LTV ratio and to call for additional cash cover if required.
4. Loan recall risk – risk that the facilities are subject to review at any time and also subject to the Bank’s overriding right of repayment on demand, including the right to call for cash cover on demand for prospective and contingent liabilities. The Bank shall have unrestricted discretion to cancel or suspend, or determine whether or not to permit drawings in relation to, the facilities.
Q: Since the interest rate (LIBOR) is on floating basis, what areas should I consider?
A: You should fully understand and consider the impact of interest rate risks. Increasing interest rate can lead to potentially higher cash outflow due to higher interest expense; and possible delay of policy breakeven year.
Q: What will happen if the policyholder winds up the relationship with the bank.
A: The Bank reserves the right to surrender the policy and use the surrender value to repay the outstanding loan.
Important Points to Note
1. The loan is provided for the purpose of financing part-payment of the single premium of the insurance policy. If loan repayments are not maintained or you decide to terminate the arrangement early, the insurance policy may have to be surrendered to repay the outstanding loan. You need to make sure that you can comfortably afford the loan repayments.
2. Insurance premium loan is subject to the Bank’s approval and the terms and conditions are set out in the Facility Offer Letter.
3. With Premium Financing loan, the insurance policy will be assigned to the Bank via a Deed of Assignment.
4. You have to ensure that the policy has been assigned from policyholder and beneficiary and the policy rights have been transferred to the Bank. This means that all proceeds payable under the insurance policy are to be paid to the Bank first, and any changes or amendments to the insurance policy are subject to the Bank’s approval. Policyholder or beneficiary has the right to seek independent legal advice.
5. The Bank reserves the right to review the loan and surrender value of the insurance policy from time to time and may at any time require loan repayment, additional collateral or reduction of the sum insured, in accordance with applicable terms.
6. An early termination of the arrangement which results in early surrender of the insurance policy may result in you not achieving your desired financial goal of increasing the estate to be left to your chosen beneficiaries.
Know More about: Best Life Insurance In Dubai