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How to make your cash-value life insurance policy work for you

I grew up in a house where money was thought of and utilized in pretty conventional ways; work for someone else, save where you can, don’t spend frivolously. All great advice. I feel fortunate in so many ways about my upbringing. But I grew restless with the common and conventional approach to money that worked pretty well for my parents, but which seemed to have some limitations in today’s ever-changing business and financial climate.

Enter Uncommon Banking. If you are familiar with our work, you know one of the core principles of Uncommon Banking centers around the leveraging of a cash-value life insurance policy. The way we look at these policies and the power you have to leverage them runs counter to almost everything you and I were taught about money and certainly about life insurance.

One of the most frequent questions we are asked here at UWP is, “How fast can I take a loan against my cash-value life insurance policy?” I feel like there should be a drumroll or some fanfare, but the answer is: immediately. In some instances, we send in a loan request with the delivery receipt and first premium check for the policy.

Why are we advocating that you treat your life insurance policy this way? Aren’t you supposed to use that cash value like a fire extinguisher encased in glass, only to “break in case of emergency?”

Nope. We advocate that you leverage that cash value based on the goals you have right now, not during some imagined emergency in the future. Don’t get me wrong, we will definitely help you to establish money habits and instruments so you have what you need in an emergency, but there is so much you can do with that cash value right now.

The great thing is, you can use that policy loan for things like buying debt or to purchase assets that produce cash-flow. So, as part of a lot of debt reduction strategies, we advise taking that policy loan out to pay off credit cards, car payments, student loans, or medical bills. You could also use it to buy an investment property. There is so much potential here!

How does this work? In short, somebody is using that money and it might as well be you. Part of the contractual obligation of the insurance company is the policy loan provision. You, the policyholder or policy owner, are in the first position to leverage against your cash value. If you don’t take a policy loan against your cash-value, then the insurance company uses that money to invest in their loan and investment portfolio to generate a return on the general fund of the insurance company.

As a principle, you know that insurance money doesn’t just sit somewhere until we need it. But when you think about it, why shouldn’t it be you who gets the benefit of investing that money back into your life?

Both banks and insurance companies pool their money into a general fund and then they use that fund to issue loans against it. The pool of money insulates the bank from some liquidity and credit risk because they know not everyone is going to come in tomorrow to withdraw their deposits. But again, you are in the first position, so first and foremost, this loan money is available to you.

So, as part of the policy provisions of your whole life contract, no matter what company you use, taking a policy loan at any time, even on the first day is a benefit of owning a cash-value whole life policy. The other nice thing is you don’t have to tell the company what the loan is for and there is no credit check.

Imagine the possibilities. Policy loans can be taken against the available cash-value at any time for any reason. Uncommon Banking is all about helping you reduce your debt and increase your cash flow. A policy loan can be a great instrument to meet those goals.