How to Take a Whole Life Policy Loan and Pay It Back
– All right, I wanna walk you through the process of taking a whole life insurance policy loan and repaying that loan.
And the reason is that I’d really like to know who I’m talking to and what is most important in your mind.
Now, the idea of taking a policy loan in the first place might sound a little interesting to you if you’re not familiar with privatized banking. So I’m gonna rewind and tell you just a little bit about why we’re addressing this concept and idea in the first place. With privatized banking, you have a whole life insurance policy. You’re funding with premium dollars, those dollars are going into the policy and they’re building up cash value.
Now, that cash value is guaranteed to be accessible to you contractually within the policy guarantees. Now what that means is that you have access to use that cash value. Now, instead of taking the cash value out of the policy, instead, you’re actually borrowing against it. Meaning that your money stays inside the policy and continues to grow with interest and dividends while you collateralize that cash value.
So here’s a very clear distinction.
You’re not taking your money out, you’re borrowing against it. That means your money can grow and compound and you’re using other people’s money instead. So now, how do you actually borrow against that money? It’s through a policy loan. What you’re gonna do is you’re going to request from the life insurance company a policy loan.
And to do this, there’s some paperwork that you need to fill out. You usually have this directed straight to your bank account, so there’s EFT form that usually involved as well. Or you can have them send you a check, but it’s always better to have it direct deposited straight into your account.
Now, you can usually do this by using a login and login information and then making sure that you fill out all the paperwork appropriately. However, we highly recommend going through your advisor.
If you contact your advisor, let them know that you wanna take a policy loan.
They will make sure you get the correct forms, correct paperwork, and that they give that to the life insurance company, that makes it way easier for you. This also then can initiate a discussion where you’re talking with your advisor about how and when you wanna repay that loan. Because here’s the thing. We wanna make sure that anytime you take a policy loan, you have a plan in place to repay it.
Now, that’s your plan, it’s not the life insurance company’s plan, it needs to be something that you agree to, what your cashflow situation will look like and how quickly you can make payments to reduce that loan. Now, as you have an outstanding loan, here’s what it looks like to you. Your cash value remains fully intact. The life insurance then provides you the capital and they put a lien against your cash value, for the portion of the loan. So say you had a $300,000 cash value inside your policy, you’re taking $100,000 policy loan, that means they’re gonna collateralize $100,000 of that full cash value.
And then that 100,000 is no longer available to be reborrowed against until you repay it. The other 200,000 though, is still available to you. So, what that means then, is with the life insurance company loan, you will be paying interest on that loan.
And the interest is going to the life insurance company not directly to you. You’re repaying that loan at interest.
Now, you can repay on your terms. That means you can repay in five years, five months, 15 years, or you can repay all at once. Now, it will continue to accrue interest while the loan is outstanding. And so, the thing you do wanna be aware of and cognizant of is that if you had a maximum policy loan, or you borrowed almost all of your cash value, or against almost all of your cash value, you would wanna make sure that that interest wasn’t growing faster than the dividends and interest we’re adding back to your cash value.
Because then your cash value could actually become depleted and end up in a situation where your policy folds.
We don’t wanna do that. But what we do wanna have is a repayment plan so that we know how much we plan to contribute to paying this loan back, either monthly or annually. Now again, what’s really awesome is that you can make changes. So if you had a delay in your repayment schedule, or you had an acceleration, you wanted to repay more quickly, you would also be able to make those changes. So just a couple things for you to become familiarized with the use of your policy.
Because a whole life insurance policy, if you’re using it for privatized banking, is not a set it and forget it on the shelf type of product. It’s really meant to be used and driven. So like if you were driving a car, you’d wanna know how to operate that vehicle. You wanna know how to operate your whole life insurance policy so that it can be this living, breathing, moving thing for you. And yes, it has the cash value component, but you’re using that cash value.
And again, you can use that for things like investing in a rental property that cash flows. And then you can have that investment property producing cash flow and using that to repay your policy loan. Anytime you use a policy loan for an asset that produces cash flow, you’re in a double win situation. Because then, you are increasing your cash flow with this opportunity that you have the ability to repay that loan outside of your own personal cash flow. So if this has been helpful to you, I would love to know.
What other questions you have about life insurance policy loans and how can we make sure that you are on the path to become a knowledgeable, intelligent, and confident owner and user of privatized banking? (upbeat music).