Borrowing from life insurance policies is a legit way to meet your financial needs and requirements.
But how borrowing against life insurance differs from bank loans? Should you do it, and in what way?
Let’s take a look at the facts.
What Is the Best Way to Borrow Money From Your Policy?
To be clear, the ultimate method for borrowing money from your policy is by taking out a loan. But we need to unpack some things here.
Firstly, you can’t take out a policy loan from any life insurance policy. You need to have one of the three types of permanent life policies: whole, variable, or universal life.
The reason for that is that term life insurance doesn’t have a savings component called cash value. So, if you still don’t have a life insurance policy, consider this difference.
The permanent life policy is the way to go if you want to borrow money from your life insurance policy. Moreover, the life insurance cash value will grow, meaning you’ll have more money each year.
If you want to learn more about different life insurance policies, you can take a look at our previous blogs and read more about the difference between term and permanent life insurance and how much are the average life insurance rates.
And much more!
But today, we’re here to see why policy loans are the best possible option for taking out a loan.
Life Insurance Policy Loans
There are three main reasons why we teach people to get a loan:
- Taking a life insurance loan is a non-taxable event.
- When you request a policy loan, the money you’re accessing isn’t the money from your policy. That money is from the insurance company, which allows your money to earn the guaranteed compound interest uninterrupted.
- You can set up your personal banking system. We’ll explain this in the rest of the article, so make sure to stick with us to learn how to get rich with one of the permanent life insurance policies – a whole-life policy.
The life insurance company collateralizes your account and gives you their money instead of yours. Here’s why it’s advantageous that the money you’re borrowing from the policy isn’t actually yours: you’re using their money, and the money in your cash-value life insurance policy keeps earning guaranteed compound interest. As a result, you can borrow more and more money every year.
There’s even more! When you borrow money from your life insurance policy, you do so with a purpose—to finance something.
If you don’t have a cash-value life insurance policy, you will do this through a loan from some financial institutions (like banks, credit unions, or others). And you will have to pay the principal plus interest on the loan you’re receiving.
Here at Wealth Nation, we teach you to do the same! The principal and interest that you are paying to someone else can be returned to you and used to create a bill for yourself. Instead of banks getting wealthier – you are.
So, with a whole life policy, you keep the principle. And how does the life insurance company get its money back? you might ask.
Well, they deduct whatever the outstanding balance is from your death benefit when you pass. It gives you the flexibility and breathing room that you need to be able to pay back the life insurance loan when it makes sense for you.
Is It Possible to Take Money Out of the Policy Without it Being a Life Insurance Policy Loan?
We’ve been asked this question time and time again. So, let’s make it clear:
Yes, you can access your money without taking a personal loan.
At what point can you take money out of your policy without it being a life insurance loan?
At any time, but your policy has to be in force and you have to have cash value available.
This means that you won’t be able to withdraw money as soon as you buy the insurance.
Withdrawing Money From Life Insurance Policy
Withdrawal is basically the complete opposite of taking a life insurance policy loan. That means you’ll get taxed on that amount because withdrawals are counted as income.
Let’s step back to understand what is happening inside your life insurance policy.
You deposit after-tax money into your policy. The compounding interest inside that policy allows it to grow and have more cash value every year.
When you withdraw that money, it is considered taxable income. In essence, by withdrawing money, you would pay taxes twice.
Furthermore, in order for compound interest to work – the money has to sit there.
When you take a life insurance loan, you ensure your money stays in your policy (remember: the entire loan amount is money from the insurance company). So, your money will earn guaranteed compound interest every year for the rest of your life, no matter how long you live.
When you withdraw the money, you’re actually using money from your life insurance policy. It means you’re disrupting the cash value’s growth.
You won’t get the same amount of growth as you would see if you were to borrow that money. When you take life insurance policy loans, that money is accessible in your account, and we can utilize it however you feel free to.
And thanks to a life insurance loan, you can utilize the money to create cash flow.
As promised, now we’ll show you how to set up your personal banking system.
How to Use Whole Life Insurance to Build Wealth
We don’t use just any life insurance policy; we’re specifically talking about a whole life insurance policy. Why did we choose this policy?
A whole life policy has a cash value component and offers life insurance coverage for your entire life, the same as other permanent policies. But whole life also has tax advantages for cash value growth, the possibility to take out life insurance policy loans, and guaranteed death benefits and premium payments.
The best part about using these policies is that you can earn interest within the policy and take that money to use elsewhere (and earn real interest).
If you want to learn how to get rich using whole life insurance, you need to know what types of investments you are interested in and what can get you double-digit returns on your investment.
Where to start?
You have to have whole life insurance designed with a high cash value to park your money. Imagine it as a storage vehicle. If you’re thinking, “Isn’t it just like a bank?” you’re absolutely correct.
But if we store our money in a bank account, we almost have no control over it. Banks are using our money to fund everyone else’s deals.
The difference is that by moving money from a bank to life insurance, you can access those funds when you need them. That is the most significant benefit of a whole life policy, and it is also one of the reasons why a policy loan is the best way to cash out your policy.
Moreover, you can use whole life insurance as a personal banking system.
The premise behind infinite banking is utilizing a whole life policy designed for maximum cash value growth.
Compound interest rates are guaranteed with whole life. To take advantage of it, you have to put in as much money as you possibly can, and after your policy builds a cash value, you can take out a loan.
By taking life insurance loans, using that money for anything you need, and repaying it with principal and interest payments that go to you – you’re doing the same as the banks do.
To put it in other words, you’re copying the system of traditional banking and becoming your own bank.
What are the results?
- You can finance everything you need;
- You won’t have to deal with bank loans or banks in general. Ever.
- You can start family banking and build generational wealth.
You have no limitation on how many times you can take life insurance loans or for what purpose to use that money. You will use your whole life insurance as a vehicle to finance your own lifestyle.
That’s why we call this process of infinite banking – Lifestyle Banking. It’s the arbitrage that you continue to gain as long as you’re a good steward of the system.
But to become a good steward or a financial advisor for your system, you need the proper education. And we know what the perfect first step is.
Watch Our Masterclass
Lifestyle banking isn’t a complicated or confusing process but requires discipline and commitment.
If you want to learn different ways to use your policy to get compounded interest and make money while you sleep, watch our free masterclass!
We will be delighted to help and watch you become one of the 1% of people who generate wealth.
And if you’ve already taken the first step and learned some basics of Lifestyle Banking, you’re probably wondering what the next step in your journey is.
We advise you to surround yourself with like-minded people who have already started their personal banking systems and are constantly looking for ways to grow and improve their finances.
Join our Wealth Nation Money School community for in-depth guidance and support from bankers all around the world!