One of the best “living benefits” of a whole life policy is the ability to borrow against its cash value. As the cash value accumulates, you can access from 85 to 90% of it in the form of policy loans at any time, for any reason, with no questions asked. The reasons to obtain policy loans are only limited by your imagination: emergency needs, home repairs, eliminate credit card debt, automobile purchases, college education, weddings, business equipment, or retirement income. You can even lend money to family members and close friends and generate a profit for yourself.
Actually, you are borrowing against your cash value, using it as collateral for your loan. The amount of cash that you receive as a loan does not actually come from the cash value of your policy, but from the general account of the insurance company so the cash value in your policy continues to earn guaranteed interest and dividends while the loan is outstanding.
The interest on loans that the insurance company charges are typically below-market, competitive rates (between 4 and 7% at the present time). If you don’t pay the loan interest due at the end of each policy year, the insurance company adds the interest to your loan balance. As you pay back your loan with interest, the money does not go back to your policy ― since it didn’t come from your policy either ― but it goes back to the general account of the insurance company, from where it originated. If you happen to die with an outstanding loan, the loan plus its interest is deducted to the death benefit going to your beneficiary.
Although you are not contractually obligated to pay policy loans, our advice is that as long as you are actively receiving an income and you are not retired, it is to your advantage to pay your policy loans to the insurance company, if for no other reason, to replenishing the loan value available to you so you can recycle it multiple times. You don’t need to pay policy loans if you are using them as a strategy to supplement retirement income when you are no longer working full-time.
If you have obtained a policy loan from your whole life policy at 4 or 5% to pay off, let’s say credit card debt at 12%, and you are an “honest banker” as Nelson Nash talks about in his book, you should pay the life insurance loan back at the same interest rate you were paying the bank or credit card company ― 12% ― which will repay your loan back much quicker and the excess payments can be added to your Paid-Up additions Rider, or if you have no additional capacity in your policy, you can go on and start a second policy.
If you would like to learn how you can grow a substantial amount of cash that you have access to at any time without penalties, is unrelated to the stock market, and will generate income that is not included in your tax return, visit our website at https://infinitebankingsimplified.com/ or feel free to email us your questions at ContactUs@InfiniteBankingSimplified.com or call us toll-free at 1-844-443-8422.
Isis B. Palicio, LUTCF, MBA
Pedro A. Palicio, MBA, Ph.D.
Infinite Banking Concepts® Authorized Practitioners