Collateral...

This is the most important determinations for successfully implementing these strategies. This is a critical step in the premium finance process, and meeting the lenders outside collateral requirements is required to secure the recourse loan for funding. Here are the potential collateral options:

• Cash or Money Market Deposits

• Letter of Credit - Qualifying Bank

• Retail Brokerage or Trust Accounts with Marketable Securities

• Certain types of Real Estate Properties (Lender Discretion)

• Cash Surrender Value of Existing Life Insurance Policies

Two considerations determine whether the borrower has sufficient collateral outside the cash surrender value of the policy used in the strategy:

1. The total amount of collateral the lender requires will vary based on lenders parameters.

2. The valuation of collateral. Lenders may not value every asset at its face or even its market value. The total amount of collateral required may vary based on the type of asset being pledged. The primary asset pledged as collateral is the life insurance policy surrender value. For the additional collateral required the standard formula is a good gauge:

• Cash, Letter of Credit and life insurance cash surrender value - 100% Valuation

• Marketable Equity securities in a diversified portfolio - 50%-60%

• Fixed Income Securities - Corporate Bonds - 70% - Municipal Bonds - 80% (Must be deemed as high quality and not Junk Bond Status)

• Real Estate - 100% Owned (Free and Clear) by the Borrower - No Mortgage Outstanding