Collateral: Alternatives to Borrowing from the Life Insurance Company
Those advisors that are “whole-life friendly” know the many advantages of a whole life insurance policy to its policyholders, and the options that are available with a little creativity and a prosperity mindset. One of the primary advantages of a policy is the ability to borrow against the policy’s cash value and secure a loan straight from the insurance company—without the long approval process of a bank loan. While beneficial for a number of reasons, borrowing against the policy is not always the best strategy depending on your client’s desires. Using a policy as collateral, however, can be a great strategy for acquiring a bank loan. For example, clients who are beginning a business might find it wiser to secure a loan from the bank while their credit is good. If the cash flow is less than expected in the first year, the client can utilize the savings of their cash value to assist in loan repayment. If the client approached the loan the other way around, they might be unable to acquire help from the bank if their business does not perform as expected. This strategy could end up consuming the cash value in repayment to the insurance company and put the business in hot water. In this case, the client could use the cash value of their policy as collateral to secure a bank loan. And with whole life insurance, the policyholder can often use the policy as collateral from local banks and credit unions. When using the cash value as collateral, banks loans often have high loan-to-value limits, usually at 80 or 90%. This means a client could borrow up to $80k or $90k with $100k of cash value as collateral. In addition, bank rates are often lower than the interest rates at the insurance company for policy loans, with current rates as low as prime. While using the policy as collateral, the client can actually have more freedom in a new or uncertain business venture because of the opportunity fund of their cash value. In turn, the client has the opportunity for plenty of future business ventures. See our previous article for other underutilized ways to use a whole life insurance policy. It’s important to note that for clients with a term insurance policy, there is no cash value at all, and therefore no ability borrow against the policy or use it as collateral. While this option is most common with local institutions, the banks listed below have been referred to us as providing this service nationally. Please contact them directly for more information. Jeanne Leconte Kensington Financial Associates 18851 NE 29th Avenue, Suite 413 Personal AND “Direct to Business” loans OK to use multiple policies for collateral KensingtonFA.com Aventura, FL 33180 (786) 574-4132 Kensington Informational Flyer Matthew Hale Heritage Bank Greater Atlanta Area firstname.lastname@example.org 404.933.5144 (cell) Patricia Davino Valley National Bank 1455 Valley Road Wayne, NJ 07470 PDavino@valleynationalbank.com (862) 261-3065 (direct) (973) 934-5886 (cell) Kathy Smith AVP, Portfolio Manager 3490 Piedmont Road NE, Suite 700 Atlanta, GA 30305 404.814.8006 | f: 404.393.9925 email@example.com For more information on the living benefits of life insurance, see Kim D. H. Butler’s book, Live Your Life Insurance, and Kim and Jack Burns’ new book, Busting the Life Insurance Lies.