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.
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.
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.
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.
Brandon launched the Insurance Pro Blog in July of 2011 as a project to de-mystify the life insurance industry. A specialist in the design and application of life insurance cash accumulation features, Brandon is one of the foremost authorities on the subject of coordinating life insurance cash values in a financial plan.