Lloyds of Lubbock
Guru
- 755
I *think* Guardian does this, but don't quote me on that, This is correct
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To your other question, yes carriers show it as one loan. It is basically a non-amortized, interest-only LOC. But, the way I do it for myself and my clients is I itemize each loan, and amortize the loan and create something "familiar" with terms and scheduled payments. Something about structure helps clients and they seem appreciative that their policies don't lapse
Some carriers do charge in advance. I *think* Guardian does this, but don't quote me on that.
But a lot of carriers do not. In these cases, policy loan payments are applied against the principal first before the interest payment is made at the end of the year. If you're making regular payments, you're paying down the principle during the year. So, in month 1 after you take the loan, you make a payment (X). Your loan principal is now P-X. And interest only accrues against P. So, with each payment against P, the total interest charge declines during the year. I'm not sure which carriers you use. But, I know for a fact this is how it works at both Mass and Penn. I believe it's the same deal at NYL and NML. My carriers do break down loan principal, loan payoff, accrued interest, etc.
To your other question, yes carriers show it as one loan. It is basically a non-amortized, interest-only LOC. But, the way I do it for myself and my clients is I itemize each loan, and amortize the loan and create something "familiar" with terms and scheduled payments. Something about structure helps clients and they seem appreciative that their policies don't lapse
I would find that amortization table business more confusing than helpful.
Thank you for the clarification. So, if I start a policy year with $10k balance at 7% & pay nothing, balance at end of year is $10700. Are you saying if I write a check 6 months in for $5,000 that they are going to say my loan was only $5k & only charge $350 for that year?
That's not at all what I'm saying, nor what was implied.
...policy loans are significantly different because payments during the year are applied to principal & not interest.
That gives the impression that a bank loan that receives extra payments during the year gets applied to interest.
Don't both literally receive the loan payment & make the loan balance lower, thus saving interest cost.
I sincerely am trying to understand how this is a significantly different aspect between the 2.
And potentially a violation of carrier selling agreements if not approved by carrier for sales or servicing of contracts if the math, disclaimers & warnings don't match carrier process, etc