What banks allow a term life policy to be used as collateral??

[scagnt83]

The best ones I love is the life insurance is only way to get tax free income other than roth...........well, yeah, its tax free because you are taking a loan. I can do that with my paid off house too. I can get a bank to give me a loan against it & not be taxed on that loan income............that is exactly what is happening with a loan from an insurance company where they take a collateral position against my policy. (sure, I can get my premium cost basis out tax free too--FIFO)

No you cant. Not the same way.

You pay taxes each year on the house.

The house is not liquid.

You have to go through credit approval for a HELOC. (ask permission from the bank)

You pay a negative interest rate on a HELOC. (insurance has wash loans)

You usually have to pay back a HELOC on set terms.

Most people do not have a paid off house.

You are limited on how much you can "contribute" to your home equity. No limits on life insurance.

Hell, a person can take a 98% loan on their IUL, let the Overloan rider kick in, and never pay back a dime.

Huge difference between the two scenarios.

I can get a loan against a gold bar... doesnt mean its the same as life insurance loans.

---

Name 1 other financial product that allows the following:
- contribution limits based on income with no caps
- no irs age limits
- tax deferral
- tax free access to funds
- income tax free death benefit to heirs

 

[PrivClientSG]

First, I've gotten legal, advanced markets, and tax, at numerous carriers to put plenty of things in writing -- none of which anybody would want to, nor rely on. The reason for getting it is substantiation, not permission. You are simply papering a file. Nothing more. Second, I never would, nor would a client, rely on carrier's position and then act upon that. That would be foolish. Third, anyone who acts, makes a decision, does something like this without expert advice, is also making a foolish decision in my opinion.

That said, every professional does their own due diligence their own way. After I do mine, and the client has the right (other) allied professionals advising them -- the client would make a decision based upon their own professionals. Period.

Lastly, apparently, there is a TAM on this. I haven't looked for it or read it.

 

[Allen Trent]

No you cant. Not the same way.

You pay taxes each year on the house.

The house is not liquid.

You have to go through credit approval for a HELOC. (ask permission from the bank)

You pay a negative interest rate on a HELOC. (insurance has wash loans)

You usually have to pay back a HELOC on set terms.

Most people do not have a paid off house.

You are limited on how much you can "contribute" to your home equity. No limits on life insurance.

Hell, a person can take a 98% loan on their IUL, let the Overloan rider kick in, and never pay back a dime.

Huge difference between the two scenarios.

I can get a loan against a gold bar... doesnt mean its the same as life insurance loans.

---

Name 1 other financial product that allows the following:
- contribution limits based on income with no caps
- no irs age limits
- tax deferral
- tax free access to funds
- income tax free death benefit to heirs

I love my life insurance cash values & I agree with all your points. However, tax wise, borrowed money from a house loan or any other loan is not reported as taxable. Reverse Mortgage doesnt have to be paid back either. My point is, Life insurance is great, but saying it is tax free differently than other borrowed money is not exactly accurate. It is tax deferred & if you dont do something stupid & let it lapse/surrender, etc before death, you pay the loan off at death with your death benefit. Same will happen with a bank loan where the bank takes a collateral position against my life policy.

I guess I just dont love the hype to the masses like it is better than all the rest. It is a great asset class that can be utilized to supplement other planning & doesnt need all the hype of only the positive aspects while bashing other alternatives while ignoring the potential downsides. Been involved in over $1M of IUL premium sales this year & about $5M of WL/SPWL this year already. So, i definitely believe in it, but also have had to shut down agents whose clients saw bad tik toks where clients had no position even looking at sizeable cash value policies as they were so upside down in their overall financial health otherwise, etc

 

[Lloyds of Lubbock]

"While on a MEC, the gains are taxable as ordinary income when taken as a withdrawal, and you have LIFO reporting, the cost basis is not taxable."
I don't think this is correct.
If you have gains on your policy whether you access them via withdrawal or loan you will incur tax.
If what you are saying is correct than you should fund past the MEC limits and access your money via loan to avoid tax, I don't think that is an option.

 

[scagnt83]

However, tax wise, borrowed money from a house loan or any other loan is not reported as taxable.

Correct. But that is leaving out a huge part of the overall picture of how the actual loan works with each option. That is why they are dynamically different.

Loans are not taxable income. That is universal.

What is not universal is all the other features surrounding how the Loan within Life Insurance works and benefits the person.

 

[scagnt83]

but saying it is tax free differently than other borrowed money is not exactly accurate..

It is entirely accurate imo.

It is tax-free money that is not required to be paid back.

It can have a 0% net interest rate.

It does not require any kind of approval process.

How is that even close to the same as any other type of loan? Even a reverse mortgage uses a discount rate.

 

[scagnt83]

you pay the loan off at death with your death benefit. Same will happen with a bank loan where the bank takes a collateral position against my life policy.

No. The Loan is already deducted from the DB prior to death. Technically the Loan is settled at death. But it is not deducting from the current DB at death.

 

[scagnt83]

I guess I just dont love the hype to the masses like it is better than all the rest. It is a great asset class that can be utilized to supplement other planning & doesnt need all the hype of only the positive aspects while bashing other alternatives while ignoring the potential downsides.

I know you are a believer. Not saying you arent.

And I agree that its benefits stand on their own.

But the way Loans work are dynamically different than any other type of Loan out there. That is a fact.

---

While we are in agreement about a lot related to the product. I have seen some comments from you at times about how much taking Loans impacts the DB. Imo, it is not as bad as you seem to make it at times. Maybe I am misinterpreting what you have said. But the way the Loans work is a huge advantage that WL & IUL have over other financial products and solutions.

I recently had a client ask about paying back a large Loan on a WL. I showed him the inforce projections of paying it back over 10 years. DB would be larger than had he never took the Loan in the first place. He had forgot that there was no set schedule to pay back the Loan. He couldnt believe he could pay it at will, and once fully paid back the DB would be even higher than the original illustration with no loan at all.

 

[scagnt83]

First, I've gotten legal, advanced markets, and tax, at numerous carriers to put plenty of things in writing -- none of which anybody would want to, nor rely on. The reason for getting it is substantiation, not permission. You are simply papering a file. Nothing more. Second, I never would, nor would a client, rely on carrier's position and then act upon that. That would be foolish. Third, anyone who acts, makes a decision, does something like this without expert advice, is also making a foolish decision in my opinion.

That said, every professional does their own due diligence their own way. After I do mine, and the client has the right (other) allied professionals advising them -- the client would make a decision based upon their own professionals. Period.

Lastly, apparently, there is a TAM on this. I haven't looked for it or read it.

First, thanks for the info about the TAM. I will look into it at some point.

I get what you are saying. Im not implying one should rely on the insurers interpretation... Im saying the opposite... the insurer themselves are telling you not to, ESPECIALLY in this specific situation. I feel that we are on the same page about trusting outside council over any other party.

There are certain subjects carriers will make very definitive statements about. These matters are essentially settled case law or something the IRS has given clear guidance on.

But when they are not willing to do that, it shows how much ambiguity exists. That is my point.

And any advisor who is relying on the carriers interpretation of a tax matter that the carrier themselves say they could be wrong about... is setting their client up for possible disappointment down the road.

 

[Allen Trent]

I know you are a believer. Not saying you arent.

And I agree that its benefits stand on their own.

But the way Loans work are dynamically different than any other type of Loan out there. That is a fact.

---

While we are in agreement about a lot related to the product. I have seen some comments from you at times about how much taking Loans impacts the DB. Imo, it is not as bad as you seem to make it at times. Maybe I am misinterpreting what you have said. But the way the Loans work is a huge advantage that WL & IUL have over other financial products and solutions.

I recently had a client ask about paying back a large Loan on a WL. I showed him the inforce projections of paying it back over 10 years. DB would be larger than had he never took the Loan in the first place. He had forgot that there was no set schedule to pay back the Loan. He couldnt believe he could pay it at will, and once fully paid back the DB would be even higher than the original illustration with no loan at all.

agree & I am 100% certain you are a hands on rep providing guidance on loans & impacts of loans. But that is not the majority of how policies are handled in our industry. I think i am a bit jaded by all the people that didnt get the level of expertise you provide & how many think they are borrowing their own money with no potential downside or consequences. Seeing people get $200k taxable gain 1099 3 decades after a loan was taken likely jaded me a bit (when policy lapses, inadvertently surrendered, 1035 exchanged out of ignorance, etc). I have no problem with loans, I think my concern is the over promotion of it while at the same time painting plans like 401ks & Roths & after tax brokerage accounts as horrible places for money