This System illustrates bank-financed life insurance. Its variations include the following:
Policy owned by an irrevocable life insurance trust
Policy owned by an individual or a business
Source of premiums if the policy is owned by an irrevocable life insurance trust
All premiums are paid via bank loan or part paid by bank loan and part paid by gifts from the trust grantor. (When tight credit markets occur, the option for the policy owner to pay premiums for interim periods can be a valuable option.)
Source of loan interest if the policy is owned by an irrevocable life insurance trust
Accrued (added to the loan)
Partially paid from gifts by the grantor with the balance accrued
All paid from gifts from the grantor
Paid from policy withdrawals and/or loans
The option to use some gifts -- particularly gifts within the annual exclusions and exemptions available -- is useful when you are dealing with an illustration with accrued loan interest in which the cumulative loan is projected to be uncomfortably close the collateral for the loan.
With the tightened credit markets, the option to use gifts for premium for the first two or three years, means that plans can get funded now, and when bank loans begin, the cash value frequently will remain well in excess of the cumulative loans -- even when loan interest is accrued.