What an IFA Really Is—and What It Is Not
What an IFA Really Is—and What It Is Not
Immediate Financing Arrangements (IFAs) are often discussed in simplified terms—sometimes as a way to “borrow back premiums,” or as a form of leverage tied to insurance. This framing is misleading. An IFA is not an insurance product, and it is not a short-term financing tactic. When used appropriately, it is a liquidity strategy designed to preserve long-term corporate planning structures while providing access to capital. Understanding what an IFA is not is just as important as understanding what it is.
What an IFA Really Is
At its core, an IFA is a coordinated arrangement that combines:
- Corporate-owned life insurance
- A third-party lending facility secured by the policy’s cash value (and, in some cases, additional collateral)
As the policy’s cash value accumulates, it may be used to support a credit facility, allowing the corporation to access liquidity without dismantling the underlying planning structure. The intent is not to maximize borrowing. The intent is to maintain flexibility while preserving long-term tax and estate outcomes.
What an IFA Is Not
It Is Not a Way to “Get Insurance for Free” Premiums are real. Loans are real. Interest costs exist. An IFA does not eliminate costs—it reallocates timing within a broader planning framework. Viewing an IFA as a “free insurance” strategy almost always leads to disappointment and poor implementation.
It Is Not a Short-Term Arbitrage Play IFAs are sometimes evaluated through a narrow lens: interest rate versus illustrated policy growth. This approach misses the point. An IFA is not designed to produce short-term gains. It is designed to support long-term planning objectives, where access to liquidity during the owner’s lifetime must coexist with estate and tax considerations.
It Is Not Suitable for Every Business Owner Not every corporation should consider an IFA. IFAs require:
- Stable cash flow
- A long-term planning horizon
- Comfort with leverage and structure
- Coordination among advisors
Without these conditions, the strategy may introduce complexity without delivering proportional value.
Why IFAs Exist at All
The need for IFAs arises from a common tension in corporate planning:
- Long-term strategies prioritize tax efficiency and estate outcomes
- Business owners still require ongoing access to capital during their lifetime
Without a liquidity solution, owners may be forced to:
- Surrender policies prematurely
- Unwind long-term structures
- Choose between present needs and future outcomes
An IFA exists to bridge this gap, allowing both objectives to coexist.
Liquidity With Structure, Not Instead of Structure
The defining feature of a well-designed IFA is restraint. Borrowing is calibrated—not maximized. Liquidity is accessed—not consumed. The planning structure remains intact. This is why IFAs are best evaluated not as standalone strategies, but as components within an integrated corporate plan that may also include estate liquidity planning and Capital Dividend Account considerations.
A More Accurate Way to Think About IFAs
An IFA is not about leverage. It is about optionality. It provides the ability to respond to opportunities or needs without compromising decisions that were made for the long term. When viewed through this lens, the question is no longer “How much can I borrow?” It becomes: “How can liquidity be accessed while preserving long-term outcomes?”
If your corporation requires ongoing access to capital while maintaining a long-term planning structure, understanding whether an IFA fits within that framework may be worth exploring.