WL LOANS

[scagnt83]

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.

You are not making an accurate comparison with this.

If he used a CD as collateral for a bank loan.... he would pay the exact same thing..... but have $20k less in assets because that interest would have gone to the bank and not back into his policy.

You are leaving out the NET on the alternative.

$30k bank loan.... minus $20k interest.... is $10k net on his balance sheet.

You are at $30k net using the WL Loan. Because the $20k is paid into the policy cash value... not into the hands of the bank.

 

[Lloyds of Lubbock]

You are assuming the loan rate in the policy is lower than the the 3rd party loan.
The loan interest you pay on the policy is not recaptured, it is paid to the insurance company.
To me it is BS.
I could do the same thing with a passbook loan or a back to back loan on my investment account.
If I pay more than I took out I have more.
I don't need a book promoting be your own bank or an insurance policy to do this.
I cannot even begin to count the lapsed policies this strategy has caused.
Can it work?
Sure if the policyowner actually understands what he is doing and pays the loan back at an increased rate.
BTID can also work for some people......if they invested the difference.
You are better off creating pools of money and if you need a loan choose the most advantageous asset to use.

 

[scagnt83]

You are assuming the loan rate in the policy is lower than the the 3rd party loan.
The loan interest you pay on the policy is not recaptured, it is paid to the insurance company.
To me it is BS.
I could do the same thing with a passbook loan or a back to back loan on my investment account.
If I pay more than I took out I have more.
I don't need a book promoting be your own bank or an insurance policy to do this.
I cannot even begin to count the lapsed policies this strategy has caused.
Can it work?
Sure if the policyowner actually understands what he is doing and pays the loan back at an increased rate.
BTID can also work for some people......if they invested the difference.
You are better off creating pools of money and if you need a loan choose the most advantageous asset to use.

I was not advocating paying a higher rate than charged. I'm simply stating what Nelson Nash's concept was. Nelson's concept called for paying a higher rate than charged.

Nor am I saying BYOB should be pushed as a concept. It can be useful for those who properly understand it and manage it. I certainly take issue with it being pushed as a cure all for low income people to suddenly become financially secure.

I feel WL is most effective at creating income streams, vs. taking large lump sums out.

It is no different than a 401k loan. Interest is paid back into the account it came from.

And that is very different than most other types of Loans.

Im not familiar with passbook loans. But if the interest is paid to the institutions account and not your own, its not the same thing.

 

[scagnt83]

The loan interest you pay on the policy is not recaptured, it is paid to the insurance company.

The interest shows up in your account. How else would you describe that other than "recaptured"?

The carrier gets the check, and credits the Owners Net Policy Value with the funds.

 

[Lloyds of Lubbock]

Maybe I am misreading you but when you take a loan from an i surance company, the interest is paid to the insurance company.
Use your own G software.
Take a out a 100k loan
The client gets 100k minus the interest taken in advance.
In order to pay the loan back the client must pay back 100k.
I never said you were advocating anything, I was just stating facts.
I will give you another fact.
A tremendous percentage of insurance agents have no clue to how a loan actually works.

 

[Allen Trent]

You are not making an accurate comparison with this.

If he used a CD as collateral for a bank loan.... he would pay the exact same thing..... but have $20k less in assets because that interest would have gone to the bank and not back into his policy.

You are leaving out the NET on the alternative.

$30k bank loan.... minus $20k interest.... is $10k net on his balance sheet.

You are at $30k net using the WL Loan. Because the $20k is paid into the policy cash value... not into the hands of the bank.

Now you have me second guessing myself.

Am I incorrect that if my kids WL policy bought at birth was 1k premium per year & was projected to cost 50k in premiums at age 50. If they took a 20k loan at age 30 & had to pay back 80k to clear the loan., won't they have paid $110k to the insurance company for the exact same policy values at age 51 that they would have paid 50k for without the loan.

I am not saying a loan wasn't necessary or a bank loan would or wouldn't have been better or carries its own cost. I am just saying the 60k charged by the insurance company for loan interest never made it into the policy.

Other than not having to qualify for the loan like a bank loan & no required payments, I don't see how loans against equity is that different than a home equity loan. May be higher or lower interest rate charged depending on rate environment. Bank loan interest may or may not be tax deductible depending on if they itemize, etc

Good conversation, but I believe 90% plus of agents don't understand how loans work, 99% of consumers & both have no idea of the potential catastrophic tax bill that can occur if lapsed/surrendered, etc

 

[Lloyds of Lubbock]

I will use an example of an older policy.
The policy has a 8% loan rate in advance.
You ask for a 100% dollar loan
The company sends you 92K.
At the end of the year you pay the loan back in full a 100k.
That full 100k did go into your policy value, but is that really paying the interest back to yourself?
In my opinion no, if you differ that's ok you are entitled to your opinion.

 

[Allen Trent]

Maybe I am misreading you but when you take a loan from an i surance company, the interest is paid to the insurance company.
Use your own G software.
Take a out a 100k loan
The client gets 100k minus the interest taken in advance.
In order to pay the loan back the client must pay back 100k.
I never said you were advocating anything, I was just stating facts.
I will give you another fact.
A tremendous percentage of insurance agents have no clue to how a loan actually works.

I believe it also moves the exact amount of loan from the liability side of the carrier balance sheet to the asset side, thus improving the net financial position of the carrier. Lastly, it is a guaranteed rate of return for the carrier as there is no scenario they won't get paid like can happen with their bond or commercial mortgage portfolio. Loans may be the most profitable asset class they hold, especially during the low interest environment like 2009-2022

 

[DHK]

I'm not sure that paying loan interest is the cause of the cash value increase that happens to be that amount or more.

Correlation does not necessarily imply causation.

 

[LostDollar]

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.

????

Mighten they do so if Market Interest rates would happen to increase above the policy loan rates they are contractually obligated to honor for a given policy holder?

I am not a finance person, I have minimal knowledge of what has happened with interest rates up and down, but... I have a whole life policy which I have held for 50 years. The contractually stated interest rate is 6% and I have taken policy loans at that rate. I have no idea what the rates were elsewhere when I had the loans, but I have to believe that over a 50 year period there may have been market rates both above and below 6%.