When to Take Policy Loans on Your Whole Life Insurance?

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When you’re contributing to your Participating Whole Life Insurance policy, the biggest obvious benefit is the life insurance benefit in the event of your death. This will take care of your dependents and loved ones in the event that you are no longer able to provide for them. However, when you use your life insurance policy to create a pool of money, it is also beneficial for getting easier access to credit when you need it at the milestones of your life.

Let’s take the example of a successful young executive, Sharon, making her way in the world. At the age of 35, Sharon begins contributing premiums of roughly $1,000 per month, to obtain a death benefit of $462,000 (Keeping in mind, these numbers won’t necessarily be the same for anyone under any company’s policy – there’s plenty of variation out there). These premiums aren’t small, but on her high-powered salary, it’s quite doable. In any case, she’s very motivated to ensure her husband and children won’t ever be left in financial distress. She’s seen this kind of drama play out among her grandparents and parents’ generations and wants to avoid that.

By the age of 40, Sharon has built up over $50,000 in the total cash value of her policy – and just one year later, that will rise to over $65,000. Around this time, Sharon and her husband are moving to a new city as she rises up the corporate ladder and want to purchase a home. They’ve been responsible with their finances, but even the most conservative savers will rarely have tens of thousands of dollars of liquid assets not tied to investments or other expenses. This is where having the life insurance policy will begin to pay off.

They can now borrow up to 90 percent of the cash value of her policy to finance a very sizable down payment on a mortgage. Potentially, some of that can go to renovations, furniture, moving costs – anything she wants, because she’s borrowing from her policy, not a bank.

Sharon will pay back the loan according to terms she wrote, which were approved by the insurance company – almost certainly, superior terms to a conventional lender.

As Sharon reaches her 50th birthday, she has over $120,000 cash value in her policy. That’s timely, as she is looking for a way to finance her children’s education at university (Timmy and Tina both made it into Ivy League schools!) as well as an upgrade to her home as well as timely repairs to her vehicle she uses to get to work. The money is once again there when she needs it, as she can borrow against the vast majority of that cash value.

When Sharon turns 60, she’ll have over $300,000 cash value in that policy, from her own premiums as well as annual dividends that have added a steady, substantial return every year. Again, she can borrow funds to do what she wants: invest in new property as an investment, purchase a vacation home, create a viable, well-capitalized business and perhaps even some fun rewards after decades of hard work.

She’s got as much access to capital to do whatever she wants at this point in her life – because she created a pool of money long ago in the form of a participating whole life insurance policy.

When should someone take policy loans? That depends on what they want to finance – and we can help you create a long-term plan that maximizes the opportunity you’re creating for yourself. Contact us today at Safe Pacific Financial to schedule a conversation.