Regional Marketing Director, Capital Choice Financial Group,
First of all, cash value life insurance is a bundled product and a bad investment. You should always separate your life insurance from any savings or investing that you are doing. Remember, life insurance is only there to protect your assets, pay off any remaining debt, and replace an income for your spouse. With this said, borrowing from a cash value policy means that you are borrowing from yourself and paying interest on the money that is saved in the policy. At the same time, your death benefit will decrease dollar for dollar by the money that you borrowed from your cash value. Now, you are paying the same premium for less insurance. Therefore, the benefits derived from borrowing from a life insurance policy will only be on the side of the insurance company.
Insurance Broker | Financial Consultant, Lawrence Insurance Consulting, Southern New Jersey
Are you kidding me? You can say that for all individuals from all income levels, with different concerns that a term policy or a spousal trust would always be a better option?
First of all anyone who qualifies any insurance policy structuring by referencing the total population of current and potential policy holders and does not give you a mixed message then they do not fully understand or do not care to fully answer the question as to the benefits or drawbacks of a policy(assuming that they are not basing their statement in the fact that the policy structuring will be eliminated/or significantly compromised by federal regulations).
First of all I am including Indexed Universal Life under the whole life product line, some professionals like to clearly separate the different options, which can serve a purpose. However I will assume a limited working knowledge of life insurance structuring regarding the average consumer who would be asking this as the first question that they would like to address once they take a seat in ones office. That being said most people who have not been educated or taught themselves the life insurance market are only familiar with Term and Whole. At very least it is a good place to start as those looking for final expense plans have no interest and are not going to benefit from hearing about all of the whole life policy structurings, and a individual who is trying to figure out how they can reduce estate taxes, avoid taxes for surpassing federal and possible state gifting limits they don't have any interest in term life and are probably going to be using life insurance along with setting up a or several trusts to help them meet their need.
If you already have a standard whole life policy and your goal when purchasing the policy was maximizing distributions to beneficiaries than I would say that the majority of policy holders that fit into that criteria would be best off leveraging the equity in their policy to meet their "borrowing" needs. This is also assuming that the policy has been in force long enough to establish a respectable cash value(depending on the policy, the premiums paid and the interest rates a rough estimate would be 8 years from the policy issue before you would consider borrowing from the policy except for in a emergency). Basically the most efficient way to borrow from such a policy would be using the cash value in the policy as collateral(as you would a car or a house) on a bank loan. This will give you the most options to shop around for the best interest rates and will simplify the entire process for you.
Right now Indexed Universal Life policies are dominating the market. They can be a little more complex and confusing. However they are seeing such widespread growth because of their interest rate structuring, and because they serve as fantastic duel purpose policies. By purchasing a policy with a face amount that is appropriate for your needs but far less then you had initially had in mind the policy will accumulate a significant cash value that can be used as a college fund, a retirement fund, or many other situations. One would generally want to plan on contributing to the policy for a specific amount of time before they will be requiring the distributions. But the amount of time you will want to give the policy to grow the cash value will depend on your needs, if you want to use if to provide a extra $40,000 annually to supplement your post retirement stream financial goals for 20 years then it will probably have to grow for about 25 years. If on the other hand you are just looking to find the most beneficial way to structure a college fund that will only be making distributions for 4-6 years then one can achieve this in a far smaller time frame, by the way I personally have funded my daughters higher expense costs from a IUL policy and I think that they are very often the best option, a professional with your best interest motivating their actions will always look into the options run calculations and then present you with your options and empirically show evidence that supports their value statement and product comparison.
That's all I am going to say except if one does not believe in cash value policies then what do they purpose as a better way to maximize transfers of wealth.
-Christopher J. Lawrence
Christopher@Lawrence-Financial-Consulting.com
Borrowing from existing cash value life insurance can work. You’ll need an in force ledger from the life insurance company illustrating the policy loan including the interest charged to borrow your money. If you don’t pay the interest charge it will cannibalize cash values to make the interest rate payment. There are several policy loan interest charging methods: Zero net cost loans, wash loans, spread loans, direct recognition loans and participating loans. Keep in mind that tax free policy loans are predicated on the policy remaining in force for the life of the policy insured.
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First of all anyone who qualifies any insurance policy structuring by referencing the total population of current and potential policy holders and does not give you a mixed message then they do not fully understand or do not care to fully answer the question as to the benefits or drawbacks of a policy(assuming that they are not basing their statement in the fact that the policy structuring will be eliminated/or significantly compromised by federal regulations).
First of all I am including Indexed Universal Life under the whole life product line, some professionals like to clearly separate the different options, which can serve a purpose. However I will assume a limited working knowledge of life insurance structuring regarding the average consumer who would be asking this as the first question that they would like to address once they take a seat in ones office. That being said most people who have not been educated or taught themselves the life insurance market are only familiar with Term and Whole. At very least it is a good place to start as those looking for final expense plans have no interest and are not going to benefit from hearing about all of the whole life policy structurings, and a individual who is trying to figure out how they can reduce estate taxes, avoid taxes for surpassing federal and possible state gifting limits they don't have any interest in term life and are probably going to be using life insurance along with setting up a or several trusts to help them meet their need.
If you already have a standard whole life policy and your goal when purchasing the policy was maximizing distributions to beneficiaries than I would say that the majority of policy holders that fit into that criteria would be best off leveraging the equity in their policy to meet their "borrowing" needs. This is also assuming that the policy has been in force long enough to establish a respectable cash value(depending on the policy, the premiums paid and the interest rates a rough estimate would be 8 years from the policy issue before you would consider borrowing from the policy except for in a emergency). Basically the most efficient way to borrow from such a policy would be using the cash value in the policy as collateral(as you would a car or a house) on a bank loan. This will give you the most options to shop around for the best interest rates and will simplify the entire process for you.
Right now Indexed Universal Life policies are dominating the market. They can be a little more complex and confusing. However they are seeing such widespread growth because of their interest rate structuring, and because they serve as fantastic duel purpose policies. By purchasing a policy with a face amount that is appropriate for your needs but far less then you had initially had in mind the policy will accumulate a significant cash value that can be used as a college fund, a retirement fund, or many other situations. One would generally want to plan on contributing to the policy for a specific amount of time before they will be requiring the distributions. But the amount of time you will want to give the policy to grow the cash value will depend on your needs, if you want to use if to provide a extra $40,000 annually to supplement your post retirement stream financial goals for 20 years then it will probably have to grow for about 25 years. If on the other hand you are just looking to find the most beneficial way to structure a college fund that will only be making distributions for 4-6 years then one can achieve this in a far smaller time frame, by the way I personally have funded my daughters higher expense costs from a IUL policy and I think that they are very often the best option, a professional with your best interest motivating their actions will always look into the options run calculations and then present you with your options and empirically show evidence that supports their value statement and product comparison.
That's all I am going to say except if one does not believe in cash value policies then what do they purpose as a better way to maximize transfers of wealth.
-Christopher J. Lawrence
Christopher@Lawrence-Financial-Consulting.com