Can a Non-HNW individual obtain any value from a LIRP?

[PrivClientSG]

If you know someone at E&Y, or have direct access to their resource material, check out their recent studies on integrating life insurance (whole life is the focus) and other life insurance products (deferred income annuities) into one's retirement plan. Very interesting reading, and very enlightening.

 

[PrivClientSG]

By the way, not that I am going to jump into the debate about "paying loan interest" and "you are paying back yourself" and all those other statements; however, I will say this, there is a reason why policy loans are reported/carried -- on the life insurance company's financial statements -- as (admitted) assets.

A policy loan is carried/reported as this -- as long as at the unpaid loan balance does not exceed the cash surrender value of the policy (or the policy reserves). Remember, the cash surrender value of a whole life policy is not just the cash value.

 

[scagnt83]

So, here me out.

If 2 identical age people buy the exact same policy with same exact premiums for say 30 years & then 1 takes out a 100k loan & the other doesn't take a loan. 24 years later if the person that took the loan pays off that 400k loan, are you saying the person that took the loan & was charged 300k in interest will have more cash value than the one that didn't take the loan?

If not, why not? If the accrued interest is paid back & fully reflected in the case value, wouldn't this be the case.

I know this isn't the case, but having trouble following how a person repaying the insurance carrier back would get the benefit of the accrued interest that compounded.

Instead, I think it is merely reflected that the lender reflects it by removing the collateral attached to the cash value & death benefit. But, the person is not directly benefitting by having a 100k loan turn into a 400k loan balance

More? No.

Same? Yes, if using NDR Loans.

Loan Interest is part of the Cumulative Loan.
That combined amount is a reduction on your Cash Value.

When paid back (assuming NDR Loans) you are making the policy whole again and it will have the exact same CV as if you never took a Loan.

Loan Interest to a bank is a loss. The concept of using NDR Loans is to make yourself not take that loss. It keeps you whole.

Im not saying its good, bad, or otherwise. It is what it is.

Paying back Loans + Interest makes you whole and avoids paying that interest at a loss. (assuming NDR Loans)

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NO LOANS




WITH LOANS

 

[Allen Trent]

More? No.

Same? Yes, if using NDR Loans.

Loan Interest is part of the Cumulative Loan.
That combined amount is a reduction on your Cash Value.

When paid back (assuming NDR Loans) you are making the policy whole again and it will have the exact same CV as if you never took a Loan.

Loan Interest to a bank is a loss. The concept of using NDR Loans is to make yourself not take that loss. It keeps you whole.

Im not saying its good, bad, or otherwise. It is what it is.

Paying back Loans + Interest makes you whole and avoids paying that interest at a loss. (assuming NDR Loans)

----

NO LOANS
View attachment 15629



WITH LOANS

View attachment 15630

Correct, but putting you back in the same position would still mean you paid the carrier interest, Correct?

IE, a 100k loan that grew to 400k after 24 years doesn't give the client the 300k of charged interest. The policy cash value & dividends grew as if no loan taken, buy paying the loan off doesn't earn the policyholder the charged interest, it earns the carrier interest, correct?

On earlier post I may have misread your comment about accrued interest being added to the policy. But the policy performance itself, on NDR, was never impacted by the loan.

The policyholder net worth, all things equal, will still be lower from the interest they owe to the insurance carrier, correct?

Sorry if I am misunderstanding, had some more back surgery & slightly medicated

 

[scagnt83]

Correct, but putting you back in the same position would still mean you paid the carrier interest, Correct?

IE, a 100k loan that grew to 400k after 24 years doesn't give the client the 300k of charged interest. The policy cash value & dividends grew as if no loan taken, buy paying the loan off doesn't earn the policyholder the charged interest, it earns the carrier interest, correct?

On earlier post I may have misread your comment about accrued interest being added to the policy. But the policy performance itself, on NDR, was never impacted by the loan.

The policyholder net worth, all things equal, will still be lower from the interest they owe to the insurance carrier, correct?

Sorry if I am misunderstanding, had some more back surgery & slightly medicated

Same position means no interest paid.

If you took the Loan from the bank. Your total net worth would have depleted by the Loan interest paid. Permanently.

If you took the Loan from the policy, your total net worth is depleted by Loan interest deducting from Cash Value. But only until interest is repaid. Its not permanent.

 

[Allen Trent]

Same position means no interest paid.

If you took the Loan from the bank. Your total net worth would have depleted by the Loan interest paid. Permanently.

If you took the Loan from the policy, your total net worth is depleted by Loan interest deducting from Cash Value. But only until interest is repaid. Its not permanent.

But if I received a 100k loan & later paid 400k to pay off my original 100k loan, I am not back in the same position. I have paid $300k more for the same policy my twin brother bought at the same time but he didn't take a loan. My twin paid exact same premiums as I did every year & we both have same CV & death benefit, but I have copies of checks to the insurance company for $300k more than he does.

That is the semantics I am struggling with. Didn't the carrier truly earn $300k in loan interest from me & not my twin brother?

 

[Allen Trent]

More? No.

Same? Yes, if using NDR Loans.

Loan Interest is part of the Cumulative Loan.
That combined amount is a reduction on your Cash Value.

When paid back (assuming NDR Loans) you are making the policy whole again and it will have the exact same CV as if you never took a Loan.

Loan Interest to a bank is a loss. The concept of using NDR Loans is to make yourself not take that loss. It keeps you whole.

Im not saying its good, bad, or otherwise. It is what it is.

Paying back Loans + Interest makes you whole and avoids paying that interest at a loss. (assuming NDR Loans)

----

NO LOANS
View attachment 15629



WITH LOANS

View attachment 15630

Don't these 2 examples you have show the one without loans had a net after tax Cumulative outlay of $836k & the one with loans has a net after tax Cumulative outlay of $2.1M? Doesn't this mean with loans the person paid almost $1.3M more? Or are these spreadsheets not giving accurate depiction?

 

[DHK]

When paid back (assuming NDR Loans) you are making the policy whole again and it will have the exact same CV as if you never took a Loan.

Same position means no interest paid.

Your first statement is correct. You have restored the policy's performance by paying the interest back to the policy.

But let's remember that the interest is charged up front and then it is paid back to the policy, restoring the ledger balances.

Interest was charged and paid out of the cash values all along. When the loan is repaid, the policy's performance was restored as if no loan was ever taken out.

There was interest paid out of pocket to restore the policy's performance.