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Create Your Own Story
Paying off Policy Loans
with an IBLOC
Financial opportunities and challenges often arise when least expected. However, when liquidity is needed fast, clients often rely on financial professionals to provide insight and strategy to lead them on the best path toward achieving and maintaining financial goals.
Whether good or bad, life often presents us with unexpected challenges and opportunities – many of which require funding. In strategic wealth management, there are several avenues accessible that can make your money work for you by gaining access to liquidity by utilizing assets that otherwise would remain dormant. To assist along this journey, financial professionals work closely with clients to provide a few different options to access the funds needed to achieve goals and cover unexpected payments to maintain wealth.
Turn the Page
with a Policy Loan
One creative strategy that may be recommended by financial professionals is taking out a loan from a permanent whole life insurance policy that has accrued a significant cash value. There are several reasons why clients can find this to be a strategic option. Foremost, policy loans can be a more stable way to tap into assets already owned without impacting credit or having to access portfolio investments. This helps clients strive toward their financial goals while managing unexpected cash needs in the short term.
Although taking a loan from a policy through an insurance carrier can be a smart way to gain access to wealth, this opportunity comes with caution. Depending on the carrier and policy type, the dividends received can be negatively affected when taking out a policy loan. Additionally, if more funds are needed, the borrower will have to request a separate loan against the policy’s cash value. Finally, if multiple loans against a policy are not monitored and managed closely, the owners may see their policy deteriorate and have to make significant payments on the loan.
Because of these variables, financial professionals should know there are other opportunities available for their clients to gain access to the liquidity they need, even if they have already taken out a policy loan and are looking for an alternative option to improve their financial future.
IBLOC: Changing the Narrative
Borrowing the same cash value on a policy from a bank specializing in cash-value loans rather than an insurance carrier is another way clients can tap into funds. Through an Insurance-Backed Line of Credit (IBLOC) offered by The Bancorp’s Institutional Banking, policyholders can access an interest-only line of credit with up to 95% of the cash value of eligible whole life insurance policies without having to apply for multiple loans.1-5
Our Institutional Banking team frequently works with wealth managers and their clients to use this strategic approach to keep whole life insurance policies and their value healthy. If a client already holds loans from an insurance carrier against their policy and finds that it is negatively affecting the value of their policy, with this option and a suitable credit line, policyholders can help pay off those loans to help policies return to good standing and simplify managing balances.
In one instance, a client approached The Bancorp’s Institutional Banking team looking to consolidate and pay off multiple loans against their policy. The client had four loans on their policy’s total cash value, totaling approximately $876K against a possible credit limit of $1.6M.
Revising Policy Loans Payments with an IBLOC
Working with Institutional Banking, the client could draw on an IBLOC and access enough funds to pay off the policy loans and have greater control over the condition of their policy. Using this strategy, their overall interest rate decreased, and their dividends performed better.7
Starting a New Credit Chapter
When deciding the best option for clients looking to access funds through their current assets, an IBLOC has obvious benefits. Still, other aspects of this strategy make it an appealing lending solution that can gain client trust and maintain the value of their whole life insurance policy.
Through its team of experts specializing in insurance-backed lending, The Bancorp has created a simplified application process with no application fees or closing costs that streamlines the process for clients.6 By using our proprietary loan origination platform, TALEA ®, the team partners with independent financial professionals to help provide an intuitive approach to improve speed and ease in loan origination. Throughout the process, partners are provided with an unparalleled level of support from our team to ensure assets are maintained, and clients have the opportunity to continue their financial story.
Opinions, findings, or perspectives contained in this blog are those of the authors.
All references to “The Bancorp” refer to The Bancorp Bank, N.A., the wholly-owned subsidiary of The Bancorp, Inc.
1. Policy must be in effect for at least 12 months at the time of credit application. Line of credit is contingent on life insurance policy remaining in good standing. The insurance policy owner must be the borrower. Insurance policy must be issued by one of the following approved insurance providers to be eligible as IBLOC collateral: Guardian, MassMutual, Northwestern Mutual, NY Life, John Hancock, Penn Mutual, Ameritas Life Insurance Corp, Security Mutual Life. There may be an adverse tax consequence to clients pledging the policy and as such, we strongly advise consulting with a tax advisor before pledging the policy as collateral for a loan.
2.Subject to credit approval and underwriting.
3. An IBLOC cannot be used for the purchase of securities or to pay off a margin loan that was used to purchase securities.
4. Collateral Lending Value is an amount equal to the sum of the then cash surrender value of the policy to which the pledgor is entitled, multiplied by such percentage as The Bancorp Bank, N.A. (“Bank”) may determine in its discretion, not to exceed ninety-five percent (95%).
5. No credit limit increase is permitted within one-hundred-eighty (180) calendar days of the loan origination date. Maximum number of credit limit increases per calendar year is two (2). Other terms apply.
6. The Bank does not charge an application fee. State, local and/or third-party fees may apply in some states.
7. Each client’s case is unique and individual outcomes may vary.
Collateral-based borrowing may not be suitable for everyone. Consult a ﬁnancial advisor about any associated risks. Consult a tax advisor for tax-related matters and an attorney for legal matters. The Bancorp Bank, N.A. does not provide ﬁnancial, tax, or legal advice. Rates, terms, and conditions of loan products are subject to change without notice.
Insurance-Backed Line of Credit