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

[DHK]

There are multiple ways to use collateral.

Only with whole life insurance will the lender guarantee the performance of the asset they are lending against.

That's not possible with real estate with either a conventional 1st mortgage, reverse mortgage, or commercial mortgage. Of course a conventional 1st mortgage and commercial mortgages on a business require payments.

A margin loan could possibly be used, but only against eligible securities and can be subject to a margin call if the value of those securities falls below acceptable levels with the loan against it.

Regarding loan interest being paid back to you - I never make that claim. Paying loan interest on a life policy is just like paying any interest on any other bank loan (although unstructured and favorable terms) while you also happen to own stock in that bank that pays dividends. Too many times it's conflated and I don't think its right or a proper representation of whole life insurance... but it's done all the time.

With IUL, even a "no cost wash loan" (borrow at 2% fixed cost while the collateralized portion earns 2% to "wash out") you lose out on indexed earnings on the collateralized portion of the policy.

I've heard that Ameritus IUL doesn't do that, but I haven't verified. Even if they do, the insurance company must always be made whole. When there's a great deal, something else has to give. So if it's true, it may not perform nearly as well as other companies that don't offer that.

There's always a cost somewhere with any policy being used for lending purposes.

 

[DHK]

Regarding a 401(k) loan - it's not possible in retirement. Once you separate from service, you cannot get a loan against your plan as it is subject to repayment from one's income from the same company (ie. working).

 

[scagnt83]

Regarding loan interest being paid back to you - I never make that claim. Paying loan interest on a life policy is just like paying any interest on any other bank loan (although unstructured and favorable terms) while you also happen to own stock in that bank that pays dividends. Too many times it's conflated and I don't think its right or a proper representation of whole life insurance... but it's done all the time.

The Ledger in the WL illustration would disagree.

 

[DHK]

The ledger can predict whatever it wants. I'll stick to what is said in Tools and Techniques of Life Insurance Planning.

Why does the insurer charge interest on an advance of money that will someday be paid to the policyowner? Because the insurer’s statement of what policy values will be year after year is based on the assumption that the insurer will have a reserve (i.e., an amount in excess of that needed to pay for the current year’s costs) to invest and earn interest so that the insurer can keep its future contractual promises. If premiums unused for costs in early years are not on hand, the insurer cannot invest that money and pay the amounts promised in the future. The charge made to policyowners who accept these advances puts the insurer back where it would have been had it been able to invest the money. (In fact the interest rate may be somewhat higher than the amount assumed by the insurer in calculating policy loan values because the insurer needs to pay for administrative costs in making, keeping track of, and repaying these loans and, to some extent, to create a disincentive to borrowing.)