WL LOANS
- Thread starter SamIam
- Start date
- 5,238
Not understanding what you are looking for exactly. There really is no such thing as a loan from a life policy. Technically you are taking a loan from the insurance company & they then take a collateral position against your cash value.
So, you can use any online loan excel spreadsheet you want. But you also need to know if the policy will pay a lower dividend rate on any Cash value impacted by collateral assignment against it
So, you can use any online loan excel spreadsheet you want. But you also need to know if the policy will pay a lower dividend rate on any Cash value impacted by collateral assignment against it
Loans from whole life policies can be useful, but it's important to know the limitations. If someone needs funds for Ground-up construction loans, a policy loan might not be the best choice since it reduces the death benefit and can create tax issues if not managed properly. Plus, loan rates could be higher than other financing options. Always compare alternatives to make sure it's the right move for long-term financial health.
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- 7,236
Yes.
However, when the situation that caused you to take the loan in the first place continues, you have no choice but to let the loan ride.
speaking from experience there.
I have needed to take policy loans a few times. Fortunately I have utimately been able to repay them, but it seems like I had one loan I had to let run for aroun 4 years.
- 7,236
I have seen some discussions on that here, but have never really understood them.
How does one go about understanding this policy you are talking about for their coverage.
I know my life policy has a loan rate of 6%. I have no clue about these other concerns, or how to understand them, or how to find out how they are specifically applied to my life policy.
- 5,238
you would have to ask your insurance company if your policy is a "direct recognition" or "indirect recognition" policy. 1 isnt necessarily better than the other, but might be worth knowing if your values encumbered by a collateralized loan is getting the same dividend rate or lower.
Biggest issue for many people is to make sure those that have loans realize how quickly they compound if not paid (IE--loan at 6% will double every 12 years if loan interest or balance not repaid) If a policy is eventually surrendered, or lapses or is 1035 exchanged to a new carrier, the insurance company that gave you a loan will extinguish you loan owed to them by taking the cash value from your policy to pay themselves. In some cases, especially old loans, this can trigger an unexpected & large tax bill even though the policy may be out of money. this is because the entire loan balance is counted by the IRS in comparison of if you have a taxable gain of more received than paid in premiums.
I have seen $20,000 loans turn into $160k loans over 35 years & no one remembers taking the $20k or that loans were taking automatically by the policy to cover premiums that werent paid. not a bad thing if known, but can be quite the surprise to owe income taxes on $80k taxable gain when you policy lapsed out with no money in it or you surrendered it because it got down to $3,000 in surrender value.
Life Insurance Policy Loans: Tax Rules And Risks
Life insurance enjoys tax preferences including a tax-free death benefit, but the lapse or surrender of a policy with a loan can still trigger a tax gain!
www.kitces.com
Lloyds of Lubbock
Guru
- 775
"but might be worth knowing if your values encumbered by a collateralized loan is getting the same dividend rate or lower."
Sometimes higher.
All old 8% loan rates were receiving a dividend of 7% or greater which was higher that the current payable rate.
Loan rates are contractual an 8% loan is 8%.
An 8% dividend rate is a number that gets plugged into a formula and
IS NOT A RATE OF RETURN.
Years ago there was a selling system that promoted 1% loans.
The rational was if you had an 8% loan rate and a 7% dividend rate your net was 1%
It was based on the math created by the famous mathematician Mr. A. N. Costello: whose math dictated 13*7 =28
7*3= 21
7*1=7
21+7=28
Sometimes higher.
All old 8% loan rates were receiving a dividend of 7% or greater which was higher that the current payable rate.
Loan rates are contractual an 8% loan is 8%.
An 8% dividend rate is a number that gets plugged into a formula and
IS NOT A RATE OF RETURN.
Years ago there was a selling system that promoted 1% loans.
The rational was if you had an 8% loan rate and a 7% dividend rate your net was 1%
It was based on the math created by the famous mathematician Mr. A. N. Costello: whose math dictated 13*7 =28
7*3= 21
7*1=7
21+7=28
- 5,238
I literally had an agent yesterday trying to convince me that paying back a loan into a WL gets more total money into it than otherwise would have. His reasoning was that the policy he was servicing had a $50,000 loan balance on an original loan that was $30,000. So, because the client paid the $50,000 back, the agent saw that the cash value & net death benefit jumped by the exact $50,000 that was repaid.
I asked him how much the client had paid per year & how long. $4,000 per year for 21 years. I explained the client had paid $84,000 in for premiums over the years to get his policy to X cash value today. that cash value originally projected would be the same as it is today at same dividend rate, but this client has paid $104,000 to get to the same spot he could have for $84,000 because of having to pay the loan interest to the insurance carrier to release his collateral assignments on his policy.
I wasnt saying the loan was bad or that life loans are bad, but the agent had convinced himself that policies do as good or better if you take the loan because he had it in his head that the Cash value & face were jumping by the entire loan balance repaid. There were a couple times during the 30 minute conversation that I started to 2nd guess myself, almost buying into the agents rationale.
This policy had 7.4% loan interest charged. in Year 21, client was projected in 2004 to have a $5200 dividend, but actual dividend this year was $2400. In this case, it wasnt because of the loan, but was because the carrier lowered the dividend scale that much 10 years ago or so.
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Lloyds of Lubbock
Guru
- 775
That sounds like a bad interpretation of the BYB Nelson Nash book.
Borrow from your policy at a lower rate and pay it back as if you paid a higher rate and you will have more money.
Wow! Who knew? I paid more than I loaned and have more money!
No one without a PHD in finance could have figured this out!
Whether it is a Direct Recognition or a Variable loan interest rate, Insurance companies are not in the business of giving below market rate loans.
Borrow from your policy at a lower rate and pay it back as if you paid a higher rate and you will have more money.
Wow! Who knew? I paid more than I loaned and have more money!
No one without a PHD in finance could have figured this out!
Whether it is a Direct Recognition or a Variable loan interest rate, Insurance companies are not in the business of giving below market rate loans.
- 10,968
Nelson Nash said to pay back an amount equal to what a 3rd party loan would be.
His whole concept, is you capture the interest on your own balance sheet.... not give it up to a bank.
You cant make a comparison of just the policy alone. You have to compare the policy loan, against a 3rd party loan.
The "catch" is the policy must be large enough to take the Loan you need.
His whole concept, is you capture the interest on your own balance sheet.... not give it up to a bank.
You cant make a comparison of just the policy alone. You have to compare the policy loan, against a 3rd party loan.
The "catch" is the policy must be large enough to take the Loan you need.
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