The Power of Whole Life Insurance in a Down Market


A few weeks ago a client of ours (we’ll call him Ted to protect his identity) reached out to us looking to take a policy loan from a whole life policy he owns.

A unique and, arguable rare, opportunity arrived on his door step (literally) and he needed cash. The interesting part of this story, though, is not that whole life cash values were available to him so that he could seize the opportunity but rather that he had plenty of other money he could have used instead.

There was just one problem, that other money was sitting in a brokerage account and was worth a lot less today than it was about a year and one month ago.

Whole Life Insurance to the Rescue

This particular individual’s assets are not primarily whole life insurance (far from it) and he could have just as easily liquidated some positions in a brokerage account to in order to fund this opportunistic purchase.

However, doing this would have locked in losses he’s carrying from the downturn the stock market endured in 2015—not attractive. Instead of having to decide if making the purchase outweighed the loss, he could simply go to a source of funds that never cares what the market is doing.

With a few key strokes and mouse button click or two, I had the money on its way to him.

Should I use my Life Insurance Policy for this?

Despite owning life insurance for years and being rather well versed in the subject, this was the first time Ted was going to use a policy loan for something beyond a minor purchase when cash flow was tight.

He asked me if I thought it was prudent to tap the life insurance policy or to simply incur the loss on some stock holdings. My reply was simple, “why sell in a down market if you don’t have to?” He agreed.

Cash is King; We’re not Kidding

We’re well known for our unconventional wisdom concerning the virtues of holding onto cash, and we’ve noted life insurance is a wonderful way of holding cash-equivalent funds at bond-like returns.

In other words, you can achieve very agreeable returns while having cash like liquidity—there really is nothing else that affords such a perfect collection of benefits.

I myself leveraged the concept of “cash is king” to make a chance real estate investment a couple of years ago that has worked out quite well.

Ted’s ability to leverage his life insurance policy represents the fruits of a forward thinking savings strategy that endures the short-term (and rather short-lived I’d like to point out) loss realized during the first few policy years followed by years of attractive, stable, and let’s not forget tax free returns.

Couple this with the fact that one can access cash values without having to sell in a down market year, and just a few of the unique array of attributes life insurance brings to the table really begin to shine through.

2 thoughts on “The Power of Whole Life Insurance in a Down Market”

  1. Brandon:
    Can you talk a bit more to give us the whole picture: What is the cost of using cash policy loan (fees? interest charged on loan? What should be aware to avoid policy lapse…etc?

    • Hi Linda,

      I’m not sure that this can be done without some very specific circumstances.

      There are no hard fees assessed against life insurance policies for a loan (at least not with any reputable company one should use for this purpose).

      Interest charges will vary from company to company, most using a variable rate will be somewhere between 4-5% per year. One important consideration on loans is whether or not interest is charged in advance or arrears.

      Avoiding lapse is quite specific to the insurance contract and the loan amount. It’s more a policy management issue.


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