License to Buy vs. Permission to Spend

In the financial industry, and in Truth Training specifically, there are two concepts with similar names that we often discuss. The first is the “License to Buy” idea, and the second is “Permission to Spend.” 

Both are important topics, both result from whole life insurance strategies, and we must understand both so that we can help our clients.

What is a “License to Buy”?

Whole life insurance, as a savings vehicle, provides benefits beyond that of your typical savings account. Not only is the cash value account liquid—it provides growth and certainty, too. And while whole life insurance acts as a great emergency/opportunity fund, it’s important that we don’t use it as a “license to buy.” 

The ability to leverage the cash value of a policy is the ideal way to access a policy’s liquidity, so that it can continue to compound uninterrupted. However, a problem arises if we encourage the misuse of this provision.

Just because you can take a loan, does not mean that it’s the wisest decision. We see a common misconception that policy loans can create income—yet the loan itself should not be the income. After all, it’s still a loan. You either pay it back, or you consume your cash value. Income, instead, should come from assets the loan can enable you to buy—such as rental real estate. 

Furthermore, we hear advisors encouraging clients they can use the policy on whatever they wish, at any time. And while this is technically true, this can become a license to buy anything and everything, whether or not it’s strategically sound. Foremost, we encourage people to look at their cash value as an emergency/opportunity fund. If you use that money for anything, you’re no longer in a position of cash to ease emergencies and partake in opportunities. 

When we speak about financial strategies, we must use the right language. While clients can take a policy loan for any reason, we should encourage them to weigh all of their options. Here are some questions that can help:

  • Will the client be able to receive a lower interest rate elsewhere?
  • Are there other assets a client can use, like a typical savings account, to fund a non-cash flowing purchase?
  • Does the client have an idea of how they’ll repay the policy loan, and when?
  • Will this purchase create cash flow?

What is “Permission to Spend”?

On the opposite end of the spectrum, we have the “Permission to Spend” strategy. This is a strategy used in retirement, in which the ownership of life insurance gives clients permission to spend down other assets they have, and still leave an inheritance. 

This strategy gives clients more freedom, when they’re no longer making income, to find creative ways to enjoy their money and have more retirement income (without disenfranchising their heirs). While it’s worded similarly, the difference is that there’s a specific strategy to back up the idea. 

Without life insurance to act as a foundation, retirees would have to carefully manage their assets so they don’t run out of money. In some instances, this means downsizing their lifestyle significantly, living on a fraction of what they’re used to. Permission to spend can extend income and improve quality of life. 

The Importance of Language

Life insurance has a plethora of benefits, including creating a solid financial foundation and good savings habits. Yet it’s so important that we use the correct language when we talk about the benefits of whole life. 

We have the privilege to share life-altering advice, yet misrepresenting the possibilities of whole life insurance can do more harm than good. 

At Truth Concepts, we seek to do more than just provide calculator training—we seek to teach concepts. We hope you’ll join us at a future Truth Training event, to expand your knowledge.

<!--[if lte IE 8]>
<script charset="utf-8" type="text/javascript" src="//"></script>
<script charset="utf-8" type="text/javascript" src="//"></script>
	region: "na1",
	portalId: "20463125",
	formId: "ce155b2b-2eec-4521-8df0-b258992f0bc4"

Leave a Reply

Your email address will not be published. Required fields are marked *