Whole Life Insurance Loans Explained

Do you have a life insurance policy and want to access your cash reserves?

Today, we’re discussing the science of whole life insurance loans. We’ll show you why a whole life insurance loan is the safest investment imaginable for the life insurance company and why a whole life insurance policy loan is not a debt to the policy owner.  

This is an in-depth exploration of Infinite Banking and whole life insurance policy loans. Understand how leveraging your whole life insurance policy can offer superior benefits over traditional bank loans, while allowing your savings to grow uninterrupted. We’ll break down the step-by-step process of requesting and repaying loans against your policy, debunking the myth that taking such loans equates to being in debt.

Discover the power of participating in mutual insurance companies, where you can benefit from dividends as part owners. Learn how using your cash value as collateral for non-recourse loans presents a low-risk, high-reward strategy, and compare the straightforward underwriting process of insurance loans to the more cumbersome bank loans. We’ll also discuss the safeguards mutual companies put in place to ensure financial stability and how they effectively manage loan requests.

Finally, we delve into the principles of Nelson Nash’s Infinite Banking Concept, emphasizing long-term thinking and strategic loan repayment to optimize your policy benefits. We’ll clarify the nuances of borrowing against whole life insurance policies, explain the importance of maintaining your contract’s integrity, and share best practices for utilizing these loans effectively. Whether you’re new to Infinite Banking or looking to refine your approach, this episode is packed with actionable insights to help you take control of your financial future.

So, if you want to understand whole life insurance policy loans, how to take a loan against whole life insurance policy, why the life insurance company is willing to offer them, how to repay them, what happens to your policy with outstanding loans, and when you should reconsider, tune in now!

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What is a Whole Life Insurance Loan?

A whole life insurance loan, also called a policy loan, is a loan FROM the insurance company with your cash value acting as collateral. The reason this type of loan is powerful is because it allows you to use the sum of your cash value without actually using it. Since you’re using the life insurance company’s money, your cash value is free to keep compounding with interest and dividends. This can make a major difference on the growth of your account.

While you do have to pay the loan back, you have much more flexibility than with any other loan type. You can make your own payment schedule, and you do not have to apply or meet any requirements, and as soon as you free up your cash value again (releasing the collateral by paying the loan balance) you can take another loan. 

Loan Safety in Insurance

Because of the flexibility of whole life insurance loans, they’re incredibly “safe” loans to have. Your loan is always fully collateralized, which means that if you cannot pay the loan, the insurance company simply won’t release that collateral. And while that will of course reduce the cash value that you can access, your account still grows with new premiums, interest, and dividends. And one day, if you do repay the loan, that collateral does get released. This means that if you experience hardship or need to pause your loan payments, you can do so without worrying about defaulting, running your credit score, or otherwise facing financial obstacles. 

If you happen to die with an unpaid policy loan, the death benefit is simply paid to your beneficiaries minus any loan balance and interest. This means that you can still use your policy without fear of disinheriting anyone. 

Bank loans, on the other hand, are much more rigid. You must begin paying them down immediately, you often have to jump through many hoops to even get approved for financing, and if you default you could face many consequences. 

Reading a Policy Illustration

If you want to know how much cash value you have available to collateralize, look no further than your policy illustration. You can have an in-force illustration run at any point in your policy, and this gives you a snapshot in time of your policy as it is, plus projections for the future. It’s important to recognize that projections are just that—projections. They’re based on what you have now, as well as the current declared dividend. They don’t account for what the dividend may be next year or the years after, so don’t put too much stock in the exact dollar amounts in the future. 

When you read your illustration, your “surrender value” is going to be the cash value you have available. Basically, if you surrendered your policy right now, your surrender value is what you’d be paid. It’s the same as selling your home and getting the equity out of your home. The loan value, or the maximum amount that you can loan, is going to be about 92-96% of the surrender value (minus any value you have already collateralized).

[41:40] “The insurance company is protecting you from accessing all the cash because they have to maintain the contract. You want to maintain the contract in case you’re not making a premium payment.”

To reiterate, you can only access the loan value via the policy loan, which will always be lower than the surrender value. This provides some wiggle room in your policy, for the benefit of both you and your insurance company (and what benefits one benefits the other). 

Taking a Policy Loan

Getting a policy loan from your insurance company is as simple as putting in a request. The funds can be in your hands in a matter of days, and you can use those funds for whatever you see fit. While many people in the Infinite Banking space talk about using policy loans for cash-flowing investments, note that you really can do anything. Investments can be a great way to continue to increase your income and increase your pool of cash—especially if it enables you to purchase more whole life insurance—and yet the sky is the limit. 

If you would like purchase an asset with a policy loan, you can. If you want to buy your next car or boat with a policy loan, you can. If you’d like to put your kids through college with a policy loan instead of a federal loan, you can. 

What’s critical in any scenario is that you have a plan to pay them back. Your plan may be to wait five years, or you may end up doing something entirely different than what you planned, but having a plan when you go into a loan means that you’re prepared. Typically, your loans will exist alongside the premiums you’re paying, so you should have a good idea of how you’ll make loan payments. While you can’t really “default” on your loan, you will still accrue interest every year that you don’t repay the loan, and those dollars will remain collateralized until you pay. 

Where Does the Interest Go?

There’s often confusion about where the interest you pay on a whole life insurance loan goes. The short answer is that it goes to the insurance company. After all, you’re borrowing their money, not your own. The longer answer is that if you have a policy with a mutual company (which, if you’re working with an IBC practitioner, you do) you’re a partial owner of the company. What’s good for the company is good for you, and when they profit, you profit. In other words, the money that you pay in interest is contributing to company profits which eventually make their way to you in the form of dividends. This cycle is why it benefits you to be a good steward of your financial obligations and repay your policy loans. 

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Do you want to coordinate your finances so that everything works together to improve your life today, accelerate time and money freedom, and leave the greatest legacy? We can help!  Book an Introductory Call with our team today https://themoneyadvantage.com/calendar/, and find out how Privatized Banking, alternative investments, or cash flow strategies can help you accomplish your goals better and faster. That being said, if you want to find out more about how Privatized Banking gives you the most safety, liquidity, and growth… plus boosts your investment returns, and guarantees a legacy, go to https://privatizedbankingsecrets.com/freeguide to learn more.