The ability to borrow from a life insurance asset, called cash value, has been common knowledge for many years. However, there are many details about the advantages of borrowing from insurance that are unknown to the general public. When used intentionally, borrowing from par whole life insurance can become a powerful tool in your financial life.
Borrowing money from Life Insurance Nelson Nash's process
You can access capital or equity in an insurance contract that has cash value, and do that in such a way where you can borrow against it. When borrowing you utilize that cash value as a form of collateral. This collateral is very powerful because it allows you to have your capital continually growing inside of the Whole life insurance contract. So you never touched the actual cash value because you’re just pledging it as collateral. Then you receive a policy loan from the life insurance companies general fund. The capital from the policy loan shows up in your bank account that you can use for any other purposes in life you so desire, regardless of what that might be.
One of the common areas that people will use this capital is recapturing third party debts. Or for acquiring investments that they might look to purchase such as investment real estate. Many will reinvest into their business by purchasing inventory, or perhaps use it to fund wages or pay for annual taxes within the business. You can replenish that pile of capital that you borrowed back to the life company that you are a Co owner in. This is very similar to a line of credit or a home equity line of credit many Canadians are familiar with. In this way, everything you return to the policy as a loan repayment becomes accessible to use again in the future. Meanwhile, your cash value assets continue to rise with daily cash accumulation. These contracts are built on a foundation of contractual guarantees provided by the Life company and can create a total control scenario for the policy owner.
When you return money or make payments on that When you return money by making payments back to the life insurance company, it pays off any existing policy loan. From that point, you can then access that money again down the road. You’ve replenished what you borrowed and it is all available again, just like if you used your savings account to make a purchase and now you have rebuilt that savings account up again. Meanwhile, the entire time your cash value continues to grow as though you never touched it. This allows you to solve one of the common problems that many people experience called opportunity cost. This is how you are able to use the “living benefits” of a permanent life insurance that has cash value attached to it. These incredible contractual features are typically associated with the main form of permanent life coverage called Par Whole Life Insurance. You are able to borrow what’s called an “unstructured loan”. Unstructured loans are extremely important because the borrower (the Policy Owner is the only one who can borrow against the policy) has total control in the repayment terms of the loan.Therefore if you are the policy owner, that means you dictate the terms of repayment on the borrowed money on that policy loan. This is absolute and total control in relation to the asset.
There’s no requirement from the insurance company for you to make a specific type of a payment at any point. You could make a one time payment at the end of the year you could do it weekly, bi weekly, monthly, semi annually, or you could even have a payment holiday and make a payment two or three years later. There will be some interest that accrues to the life company but this goes back to the mutual pool that benefits all of the Par owners which includes you.
When you are a Participating Owner you are part owner in that company and so there are some additional benefits. You participate in the overall profitability of that large money pool that’s being managed on your behalf, and on the behalf of all par owners. You get to participate in the divisible surplus on an annual basis. Over time these dividends when put back towards your policy as s paid up insurance can create a perfect uninterrupted compounding effect and the dividends can become enormous. THey help you accumulate an ever growing pool of cash value to use while you are alive.
Unfortunately…sooner or later somebody dies. In which case the death benefit comes in and it pays off any outstanding policy loan. This means that lien is actually placed on the death benefit. So if there’s a death claim, the money comes out tax free, it pays off any outstanding indebtedness to the insurance company plus any outstanding interest that has accrued goes back to the life company for the benefit of each and every Participating Owner. These policy loans and the interest earnings are one of the investments that the money pool makes on behalf of all owners. It can help to stabilize long term dividends to each owner. The remainder of the death benefit goes tax free to the beneficiaries that the policy owner chooses.
It’s a very seamless method of allowing you to live your life insurance. So you can actually utilize it while you’re alive to accumulate other assets and have financial peace of mind. It's an extremely liberating way of incorporating a lifetime financing mechanism by using this cash value. Then also being able to leave a true legacy behind thanks to the tax free payout.You had access to acquire every major purchase you were planning to make during life and a tax free windfall that comes in to solve many of the financial and even emotional problems that arise when someone passes away. This method of using your cash value savings as a self financing option provides the most amount of control, and for many provides the best growth potential on your existing capital.
This borrowing from life insurance is a very efficient way for you to practice the concept of becoming your own banker. In essence, it is how we choose to go out and purchase and finance the things that we do in life already. Nelson Nash clearly isolates in his teachings is that by paying cash, you’re still making a financing decision.You’re borrowing from your future growth potential. So when we utilize the policy cash value asset instead for this purpose, we are creating an environment where you never give up the compound potential of your money ever again.
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