Life Insurance Loans in Retirement

[Louis Tully]

Is it possible to use life insurance loans to fund or partially fund retirement indefinitely? I'm trying to think of a scenario in which the policy cash value is growing by an amount greater than what I would borrow. I would appreciate it if someone has a strategy or a link with some information.

 

[Larry Tew]

Is it possible to use life insurance loans to fund or partially fund retirement indefinitely? I'm trying to think of a scenario in which the policy cash value is growing by an amount greater than what I would borrow. I would appreciate it if someone has a strategy or a link with some information.

Not indefinitely, but as long as you have net cash value - sure. You can do a combination of dividend withdrawals and policy loans to get the best tax and cash flow scenario.

Since you don't plan to put the money back when taking retirement income, you just have to take an amount that will allow the cash value to last to policy maturity - even if the residual cash value is small. You will have increasing cash values being offset by increasing policy loan interest, so you have to be somewhat reasonable when deciding how much cash flow to take.

 

[BNTRS]

Is it possible to use life insurance loans to fund or partially fund retirement indefinitely? I'm trying to think of a scenario in which the policy cash value is growing by an amount greater than what I would borrow. I would appreciate it if someone has a strategy or a link with some information.

This may just be a matter of semantics, but indefinitely would need further explanation. I'm guessing you really mean for the rest of your life and the answer to this is yes.

This isn't something that you should try to do without some guidance from someone who has a strong grasp of insurance products and can guide you. That's not to say that you couldn't get to a point where you can manage it on your own, but there's not quick guide to get you there.

We've written a bunch of articles on this topic, here are a few that may be helpful:

But they make you Borrow and Pay Interest on YOUR Money!

What is a Life Insurance Policy Loan?

Use Cash Value Life Insurance to Create Retirement Income

 

[Louis Tully]

That's good information. In the real life example listed above, does the policy cash value pay the loan interest? It seems as the loan amount continues to grow, so does the interest owed. How does the policy cash value continue to grow allowing the policy owner to both pay loan interest and borrow more cash?

 

[DHK]

I've *heard* that there may be riders to guarantee lifetime income from life insurance policies... but I haven't seen anything rolled out yet.

 

[TwiLight]

I've *heard* that there may be riders to guarantee lifetime income from life insurance policies... but I haven't seen anything rolled out yet.

Have you looked at LSW/NLG plans? They have the closest I have seen from a company that will guarantee a lifetime loan at retirement.

I know they are not one of your favorite companies (lower COMDEX scores and such), but worth looking at in this scenario.

 

[DHK]

I'll look into it. Thanks.

 

[Louis Tully]

If my main concern is making sure the policy doesn't lapse and that there are no tax consequences, then what is a safe amount to take out annually? An amount less than or equal to the increase in cash value? Or maybe the answer is more complicated than that.

 

[paytoplay]

If you have an agent, work with him/her.

Otherwise, if you have an existing policy, call the company and request an illustration (or an agent). Tell them what you are trying to accomplish. E.g., at age 65 and thereafter, I want to take a loan out of my policy for the same amount each year (with no interest payments) and without having the policy lapse. Given the current low interest rates, to be conservative, ask for the illustration to reflect a .50% reduction in the dividend scale. Also, you may want to go ahead an elect the automatic premium loan option for your policy. If you don't pay the premium out of pocket, the automatic premium loan automatically takes a policy loan to pay the premium due. Be sure to reduce the amount of the loan you take by the amount of the loan already taken to pay the premium.

You should request the same illustration each year 2 months or more after the anniversary to make sure everything is still on track.

 

[Justin Bilyj]

I wish the mutuals had an overloan rider...