You are a proud owner of a high cash value whole life policy, you have accumulated significant cash value, and you have decided you would like to use some of that money, how exactly does this work?
Did you know, that when a policyholder has cash value in their whole life plan, they have a contractual right to take a loan out against their cash value? That’s right, against not from! This may seem like an insignificant point, but it’s a powerful contract feature. Since you’re borrowing the Insurance company’s money for an opportunity, that means your money will continue to compound uninterrupted every year. This means you won’t lose the forward momentum of your money while you pursue a financial opportunity.
You will be charged interest in advanced by the insurance company and here is why. When you borrow their money, they lose the ability to earn the interest they would have earned, which is vitally important so that they can keep their promises to you by keeping the company in strong financial condition.
Most of our clients own a High Cash Value plan because they wanted to start controlling the banking function in their lives. So when you become the bank, you need to think and act like a bank and treat your money like any other structured loan. The beauty of a policy loan is that you have a lot more flexibility and control but it is still important that you treat your money with the same respect that you would if you were borrowing money from a bank. You do not want to take a policy loan unless you intend to repay it. You also want to make sure, at the very least, even if money is tight, that you are paying back the interest that the insurance company is charging for the loan. When you are able, you can begin repaying your loan and building up your available cash value for your next opportunity.
You can borrow against your policy for anything you want; a business opportunity, a loan to someone else (at a higher rate of course) or for a dream vacation. What makes these plans rock is that you can have your money working in 2 places at once. That is how you increase the velocity of your money just like a commercial bank. As you make your money back or return from that vacation, you start paying back to loan, in payments or a lump sum, and by adding a little extra money into your payment, you will make your policy grow even faster.
One way a client of mine uses her plan is as follows:
She rents office space for $1500 a month, which is $18,000 per year. She was able to negotiate with her landlord a discounted rate of $15,000 for the year if she paid a year’s worth of rent up front. She borrowed the money against her policy and then paid the insurance company back at $1500 per month. She was able to deduct the interest she paid to the insurance company as a business expense and reduced her annual rent by $3,000!
When you start borrowing for business purposes, please contact your accountant for proper guidance. As you can see, policy loans can be powerful, and they allow you to take advantage of business opportunities while your money continues to grow.
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Are you interested in learning more? Please contact us today at NeeserInsurance.com or call 574-234-1980 – we are here and ready to help!
