Premium financing stress test

Rising rates and falling cash values can trigger collateral calls. The loan contract determines actual lender rights.

Illustration only, not advice.

The current rate and each rate shock apply from year one and stay constant. Growth compounds annually on your starting cash value.

LTV = loan balance / cash value. The initial lending limit checks your starting assumption; the margin threshold checks each year.

Equity = cash value minus debt. The after-interest balance also deducts interest paid in cash; neither is investment profit.

At the margin threshold, extra collateral or repayment may be required. If you cannot provide it, forced surrender could follow.

A lender may call the loan sooner for other contract reasons. Year-end checks may miss an earlier call; dates are not predictions.

This annual model excludes fees, tax, currency changes, withdrawals and repayment penalties. It continues after a warning.

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Static worked example

Hypothetical example — invented amounts, no insurer or product. All amounts use one currency of your choice.

Hypothetical cash value and current-rate loan balance by year

The solid line shows policy cash value; the dashed line shows loan debt at the current rate with interest added. See the table.

First threshold warning / possible forced surrender if unmet: 2

Illustration only, not advice.
Year	Starting policy cash / surrender value	Loan balance	Annual interest cost	Cumulative interest cost	Equity	After-interest balance	Loan-to-value (%)
1	97,000	84,000	4,000	4,000	13,000	13,000	86.6
2	94,090	88,200	4,200	8,200	5,890	5,890	93.74
3	91,267.3	92,610	4,410	12,610	-1,342.7	-1,342.7	101.47
4	88,529.28	97,240.5	4,630.5	17,240.5	-8,711.22	-8,711.22	109.84
5	85,873.4	102,102.53	4,862.03	22,102.53	-16,229.12	-16,229.12	118.9
6	83,297.2	107,207.65	5,105.13	27,207.65	-23,910.45	-23,910.45	128.7

First threshold warning / possible forced surrender if unmet: 2

Illustration only, not advice.
Year	Starting policy cash / surrender value	Loan balance	Annual interest cost	Cumulative interest cost	Equity	After-interest balance	Loan-to-value (%)
1	97,000	85,600	5,600	5,600	11,400	11,400	88.25
2	94,090	91,592	5,992	11,592	2,498	2,498	97.35
3	91,267.3	98,003.44	6,411.44	18,003.44	-6,736.14	-6,736.14	107.38
4	88,529.28	104,863.68	6,860.24	24,863.68	-16,334.4	-16,334.4	118.45
5	85,873.4	112,204.14	7,340.46	32,204.14	-26,330.74	-26,330.74	130.66
6	83,297.2	120,058.43	7,854.29	40,058.43	-36,761.23	-36,761.23	144.13

First threshold warning / possible forced surrender if unmet: 2

Illustration only, not advice.
Year	Starting policy cash / surrender value	Loan balance	Annual interest cost	Cumulative interest cost	Equity	After-interest balance	Loan-to-value (%)
1	97,000	87,200	7,200	7,200	9,800	9,800	89.9
2	94,090	95,048	7,848	15,048	-958	-958	101.02
3	91,267.3	103,602.32	8,554.32	23,602.32	-12,335.02	-12,335.02	113.52
4	88,529.28	112,926.53	9,324.21	32,926.53	-24,397.25	-24,397.25	127.56
5	85,873.4	123,089.92	10,163.39	43,089.92	-37,216.51	-37,216.51	143.34
6	83,297.2	134,168.01	11,078.09	54,168.01	-50,870.81	-50,870.81	161.07

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