How Policy Loans Work For A 100 Year Real Estate Investor
When you started your 100 Year REI structured policy, not only did you set up a way to get more out of your savings, you also created a powerful vehicle to use for self-financing. Your policy allows you to borrow against the cash value without interrupting the compounding of your cash value. In other words, you continue to grow the dollars you borrowed as if you never touched them! Let’s talk about how policy loans work.
Borrowing from your cash value: How do policy loans work?
When you think of borrowing against your policy, imagine that the insurance company has 2 buckets. The first bucket is your policy – including your cash value and death benefit. The second bucket holds the insurance company’s general fund, which they use to invest in order to generate profits.
When you request a policy loan, the insurance company will use your policy to secure the loan, but the dollars for the loan come from the general fund. Since they no longer have this cash available to invest, they charge interest on the policy loan. When you repay your loans with interest, the insurance company realizes this interest as a profit. At the end of the year, their profits are then distributed to their policy owners in the form of dividends (dividends are not guaranteed).
In the meantime, your cash is still inside your policy and has the opportunity to earn dividends as if you never touched it. If you pass away with a loan outstanding, the insurance company will collect the outstanding loan balance from your death benefit, and the remaining funds are passed to your beneficiary.
What’s available to borrow?
You can borrow 85-90% of your net cash value at any time for any reason. There’s no credit check or application to complete to use your money. As long as the cash is inside your policy you have the option to borrow against it!
Who decides how and when I need to pay back my policy loan?
You get to set the terms of how and when you pay back your loan, and you have the ability to stop or skip payments without penalty. The insurance company only determines the amount of interest you are charged to borrow against your policy.
The payments you make towards your 100 Year REI structured policy loan are different than traditional loans. When you make a loan payment, your entire payment goes towards the principal. It’s not split between principal and interest. Instead, the interest accrues throughout the year on the remaining principal, and you’ll receive a bill for the accrued interest on your policy anniversary. At that time you can choose to pay off the interest or allow it to be added to the principal.
Since you are able to put your payments towards the principal, you’ll end up paying less in interest than a traditional loan.
What sort of items can I self-finance through my policy?
This is the implementation of what we call The Dual Asset Strategy™. The possibilities on what you can self-finance through your policy really are endless, and over the years we’ve seen our clients get really creative. Below you’ll find just a few ideas for big-ticket items we typically finance, that you can use your policy to pay cash for:
- Real estate investments
- Purchasing a car or RV
- Paying for vacations
- Wedding expenses
- Accelerating your mortgage payoff
- College funding
- Medical expenses
- Home repairs or remodels
- Business expenses
- Retirement income
There are tons of other benefits that come with this specially-design whole life insurance policy that you probably don’t even know about. In fact, we recorded an entire webinar on these additional benefits. To learn about all the other ways to leverage your new policy, watch the webinar here.
Have you used your policy recently for something unique? Let us know, we’d love to hear about it!
Do you have a question regarding self-financing using your 100 Year REI policy that’s not covered here? Don’t hesitate to reach out to us here: 214-989-8082. We are always happy to help you get the most out of your savings!
Haven’t started your policy yet? Become a 100 Year Real Estate Investor today!