State Farm Debt Consolidation – How to Take a Whole Life Policy Loan and Pay It Back
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Whole Life Policy Loan: How to take a policy loan and repay that loan. https://themoneyadvantage.com/how-to-take-a-whole-life-policy-loan-and-pay-it-back/
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I want to walk you through the process of taking a whole life insurance policy loan and repaying that loan.
With privatized banking, you have a whole life insurance policy.
You’re funding with premium dollars, those dollars are going into the policy, and they’re building up cash value. That cash value is guaranteed to be accessible to you contractually within the policy guarantees.
What that means is that you have access to use that cash value.
Instead of taking the cash value out of the policy, you’re borrowing against it, which means that your money stays inside the policy and continues to grow with interest and dividends while you collateralize that cash value.
So here’s a very clear distinction.
You’re not taking your money out; you’re borrowing against it.
That means your money can grow and compound, and you’re using other people’s money instead.
How do you borrow against that money?
It’s through a policy loan. What you’re going to do is request from the life insurance company a policy loan.
To do this, there’s some paperwork that you need to fill out. You usually have this directed straight to your bank account, so there’s an EFT form that’s often involved as well.
Or you can have them send you a check, but it’s usually better to have it direct deposited straight into your account.
You can usually do this by using a login and login information and then making sure that you fill out all the paperwork appropriately.
However, we highly recommend going through your advisor. If you contact your advisor, let them know that you want to take a policy loan. They will make sure you get the correct forms, correct paperwork, and that they give that to the life insurance company, which makes it way easier for you.
This can initiate a discussion with your advisor about how and when you want to repay that loan.
Because here’s the thing. We want to make sure that anytime you take a policy loan, you have a plan in place to repay it.
As you have an outstanding loan, here’s what it looks like to you.
Your cash value remains fully intact.
The life insurance then provides you the capital, and they put a lien against your cash value, for the portion of the loan.
Say you had a $300,000 cash value inside your policy, you’re taking $100,000 policy loan, which means they’re going to collateralize $100,000 of that cash value.
And then that 100,000 is no longer available to be reborrowed against until you repay it.
The other 200,000, though, is still available to you.
What that means is that you will be paying interest on that loan.
The interest is going to the life insurance company, not directly to you.
You’re repaying that loan at interest. Now, you can repay on your terms. That means you can repay in five years, five months, 15 years, or you can repay all at once.
It will continue to accrue interest while the loan is outstanding.
If you had a maximum policy loan, or you borrowed almost all of your cash value, you would want to make sure that that interest wasn’t growing faster than the dividends and interest we’re adding back to your cash value.
Because then your cash value could actually become depleted and end up in a situation where your policy folds.
We don’t want to do that.
We want to have a repayment plan so that we know how much we plan to contribute, either monthly or annually.
What’s awesome is that you can make changes.
If you had a delay in your repayment schedule, or you wanted to repay more quickly, you would also be able to make those changes.
A whole life insurance policy, if you’re using it for privatized banking, is not a set it and forget it on the shelf type of product.
It’s meant to be used and driven.
So like if you were driving a car, you’d want to know how to operate that vehicle. You want to know how to operate your whole life insurance policy so that it can be this living, breathing, moving thing for you.
You can use that for things like investing in a rental property that cash flows. And then you can have that investment property producing cash flow and using that to repay your policy loan.
Anytime you use a policy loan for an asset that produces cash flow; you’re in a double win situation. You are increasing your cash flow with this asset, and you can repay the policy loan from the asset giving you a return in 2 places at the same time.
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