One of the contractual benefits of life insurance is the ability to take loans against the policy. With many whole life policies you can also have the policy premiums paid through loans at some point depending on policy performance.
Historically, many whole life policies have their dividend selection set to buy additional insurance (paid up additions or PUAs) while premiums not paid out of pocket are paid by automatic internal loans. This may work if the policy is well funded and performing adequately or when the selections was made at a point in time when dividends were much higher than they are today. However, many policies are suffering terribly due to lack of Objective understanding and management and are in danger of failing without significant infusions of cash. If these policies do fail, many will have catastrophic income tax consequences for policy owners, including income taxes payable on phantom gain.
It doesn’t have to be this way. Attentive management can keep these problems from developing. For those policies that are already in trouble (whether the policy owner realizes it or not) the policy loans may be refinanced at lower rates and more attractive terms. It’s not uncommon to see policy loans at 8%. Who would accept that on a home mortgage? Why accept it for a policy loan?
Additionally, your life insurance policy may perform much better without the loan. Our service includes a thorough evaluation of policy management strategies that help you quantify the benefits of restructuring your life insurance policy and evaluating loan options.
It is not uncommon that this work rescues struggling policies with no additional cash outflow and often improve policy performance while substantially reducing cash outflow. It’s really quite amazing that life insurance loan management remains in the dark ages and policy owners suffer for it. Surprisingly, many of our clients never even knew their policies had loans until their advisors referred them to us for a consultation.
Another aspect of our services pertains to refinancing loans procured for premium financing. This is where commercial loans are taken for the purpose of paying premiums from the outset of a policy. However, the terms of these loans is not always the best the market offers and we’ve been able to reduce payments and lock in loan rates to make the transactions more conservative. Even a quarter point reduction can result in worthwhile savings.all or Email