Did you know you can strategically finance your life insurance policy? This advanced strategy, known as Leveraged Life Insurance, allows you to secure protection and build wealth while maintaining cash flow.
It works because permanent life insurance—specifically Participating Life Insurance—is a stable financial asset.
The Power of Cash Value
Participating policies quickly build a Cash Surrender Value (CSV), which is the cash amount you can access if you surrender the policy.
- Quick Access: The CSV often grows to surpass the total amount of premiums paid in as early as Year 5, giving you early access to your capital.
- Stability: Banks and lenders view the CSV favorably because it is liquid, stable, and often guaranteed by the policy contract. Dividend interest is “smoothed” and vested, meaning growth is locked in and predictable—unlike volatile assets like real estate or stocks.
How Leveraged Life Insurance Works
Some clients choose to borrow money from a bank or credit union to fund their life insurance premiums.
- The Loan: A bank provides a loan to cover the premiums.
- The Collateral: The bank uses the policy’s growing Cash Surrender Value (CSV) as security for the loan.
- Cash Flow Neutrality: This approach allows you to secure the life insurance coverage and benefit from the policy’s tax-advantaged growth, with the interest on the loan being the only initial out-of-pocket cost.
Why This Strategy Works
Leveraged life insurance offers compelling financial advantages:
- Net Wealth Growth: Current policy dividend interest rates often outpace loan interest rates. This means the money inside your policy is growing faster than the debt you owe, enhancing your net wealth over time.
- Loan Repayment at Death: In the event of your death, the outstanding loan is simply paid off from the tax-free life insurance proceeds, leaving a substantial, protected amount for your estate.
- Flexibility: Financing can be put in place from the start or integrated later if your personal or business financial circumstances change.
Partner with Unity for Advanced Planning
Leveraged life insurance is a sophisticated strategy that can significantly enhance the financial and tax benefits of your overall plan.
Unity specializes in combining financing with life insurance. We leverage our strong relationships with national banks and credit unions to work alongside your accountants and advisors, ensuring the strategy is implemented tax-efficiently from start to finish.
Ready to explore if a leveraged life insurance strategy is right for you? Contact a Unity advisor today.