- 2,348
Well Said
WL cash value real estate?
- Thread starter Zach
- Start date
- 11,451
Got to have a sophisticated agent who can help manage the policy in order to sell these concepts.
Unpaid loan interest will compound against the policy, but if it's paid out of pocket each year, that will help maintain the policy, even if the loan isn't repaid.
Unpaid loan interest will compound against the policy, but if it's paid out of pocket each year, that will help maintain the policy, even if the loan isn't repaid.
Sure, but if a client wants to buy a house, I'm guessing that they don't have a 10yr+ plan nor the cash flow necessary before withdrawals begin (starting from scratch).
Early w/ds from a life policy are terrible in almost every way.
- Thread starter
- #14
Zach
Expert
- 67
I did not know the interest rate compounds if you don't pay it back. It paints a picture like it would still grow over the years and make more money than what was borrowed. Does the idea of a collateral business loan from the bank for 3.5% and then you get to write the interest off as a business expense sound correct? Seems like that would be the only logical way of performing this.
- 11,451
You can do a collateral assignment but the client and the policy will have to qualify. Plus there will be some terms to adhere to from the bank.
Liquidity always has a cost.
Liquidity always has a cost.
- 11,451
You can always write the interest off as a business expense as long as it was used for the purpose of earning a profit. (You don't have to actually MAKE a profit - at least initially.)
You can borrow from your mother and still write off the interest.
As far as how policy loans work, please see the attached that I copied/pasted from Tools and Techniques of Life Insurance Planning.
- 4,880
High majority of people can't. Very low % of people itemize, so personal loan interest can't be actually written off for most as they take the standard deduction
- 10,691
You need to learn the product inside and out before you go selling large premium policies.
Stop learning "concepts" and learn the product first and foremost.
The Loaned funds could have continuous arbitrage .... if the Dividend stays above the Loan Rate.
The interest could be written off as a business expense.... if the person itemizes expenses on their tax return.
The Loan interest most certainly compounds. If taken responsibly, it would not need to be paid back... but that also affects the performance of the policy a good bit. But taking large sums out of the policy in the first 5 years is not responsibly and is a recipe for a lapsed policy if not closely managed and if interest is not paid back to some extent.
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Only a handful of banks will accept a life policy as collateral assignment for a Loan. And that handful is getting fewer and fewer. Credit scores and income still play a part in the underwriting of that Loan.
IF they can qualify for a 3.5% rate, that would be much more preferable than a policy loan... but most rates I have seen for banks offering that are in the 5% range.... which makes it much less attractive from an arbitrage standpoint.
- 11,451
This strategy isn't for those people - unless they get an inheritance or lottery windfall and put it to work in an entrepreneurial way.
This was for this thread, which higher income was assumed.
But if they were able to fund a life policy and borrow against it for business purposes, they too could write off the interest... and yes, that assumes that all their itemized deductions are greater than the standard deduction.
- 2,348
I still have no idea how this "system" is more effiecent [Tax, Investment, Time] than just getting a typical mortgage at the super low rates still available today in an interest rate market that is bound to rise and potentially using some of those costs as a completely legitimate tax deduction.
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