The Financial Partners Founder On How Smart Business Leaders Are Building Tax-Free Wealth Using Other People's Money

Int'l Business Times

4 days ago

Most people think of life insurance as a cost, a necessary protection policy filed away in a drawer. But what if it could be one of the most powerful tax-free wealth-building tools available?
That's the question, Michael (Mike) Smith, Managing Partner and founder of The Financial Partners Group (TFP), believes more business owners and high earners should be asking. "Premium financing life insurance has long been the playbook of the ultra-wealthy," Smith explains. "But the game has changed. We're now helping executives, entrepreneurs, and even professional athletes use this strategy to create tax-free income and preserve wealth for generations. And no, it's not as risky as most people assume."
Premium financing is a strategy where a client borrows money from a third-party lender to fund a life insurance policy, usually an indexed universal life (IUL) or similar cash-value vehicle. Instead of tying up capital in hefty annual premiums, the client retains control of their cash while the policy accumulates value over time.
According to Smith, this approach flips the traditional insurance conversation on its head. "We're not talking about paying $100 a month to get a death benefit. We're talking about using institutional strategies, used by billionaires, banks, and major corporations, to create a tax-advantaged retirement income and long-term wealth preservation vehicle."
In short, the client gets access to market upside without downside risk, IRS-compliant tax-free income through policy loans or withdrawals, and significant death benefit protection for their heirs. Smith further shares that there are minimal upfront out-of-pocket costs. And the biggest kicker is it's built on borrowed money, what he calls "one of the most efficient ways to use leverage in the financial world."
Historically, premium financing was reserved for the ultra-wealthy. But Smith says today's savvy professionals, especially those under 55 with strong income, are increasingly using the same tools. "The strategy works particularly well for business owners, executives, professionals, and athletes," he says. "People who have the income and credit profile to qualify, but who don't want to lock up massive amounts of capital."
Take one instance that Smith portrays: a couple in their mid-50s earning $550,000 a year, with $5 million projected in retirement savings, all taxable. They want to double their projected retirement income to $40,000 per month tax-free. The traditional route would have required $25,000 per month in new savings. Instead, using premium financing and TFP's Legacy Plan™, they are able to commit just $25,000 per year, using collateral and lender capital to generate the same (or better) outcome. "That's a 12x difference in capital outlay," Smith emphasizes. "Same goal, dramatically different journey."
Despite its advantages, premium financing has long been misunderstood, even within the financial advisory world. "A lot of advisors think it's too aggressive, too risky," Smith says. "But that's because they've never been properly educated on how the strategy works, or how the risk is managed. Once I walk them through the actual structure, their response is usually: 'Oh, this isn't nearly as risky as I thought.' And they're right."
Smith points to several built-in safeguards: adjustable interest rates, liquidity buffers, collateral management, and carrier guarantees. "Like any financial tool, it has to be designed right. But the risks are far more manageable than most people believe."
He adds that even major privately held insurance conglomerates are now leaning into premium financing. "They wouldn't even look at this space a few years ago. Now I'm one of their intermediaries, and they're fully behind it. This goes to show that, even the most conservative financial institutions are recognizing premium financing is an important planning opportunity. And is not as risky as once thought," Smith affirms.
One of the most compelling aspects of the strategy is its tax advantage. If properly structured, both withdrawals and loans from the policy's cash value can be taken out tax-free, thanks to longstanding IRS rules protecting life insurance's unique status.
"These aren't loopholes," Smith explains. "They're built into the tax code. The industry has powerful lobbying support because the products serve legitimate protection and planning needs. You're putting the money to work inside an IRS-recognized structure." Because of regulations passed in 1987, policies must adhere to specific funding limits, he agrees, but those limits still leave ample room for meaningful wealth growth.
With higher tax rates on the horizon and more scrutiny on qualified retirement plans, Smith argues that professionals need smarter ways to diversify and preserve wealth. He states, "You spend your whole life building your business, your career, your income. Then retirement hits, and suddenly, you're giving a huge chunk of it away in taxes. Premium financing changes that trajectory."
While the strategy isn't for everyone, health, age, and income requirements apply, Smith believes more advisors should be educating their clients. "This is advanced planning. It's what the best of the best are doing. And it's time more people knew about it."