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Understanding the IBLOC: How to Access Liquidity with an Insurance-Backed Line of Credit
Managing long-term financial goals can be a difficult task for both individuals and the financial professionals managing their portfolios, especially when access to liquidity is needed fast.
In order to stay on track with goals, it may make sense to tap into other forms of funding when it comes to larger purchases or other financial obligations. When considering options to access capital, an easy and flexible option could be an Insurance-Backed Line of Credit (IBLOC).1-3
In the marketplace, an IBLOC is also known as a Cash-Value Line of Credit (CVLOC) or Cash Surrender Value (CSV) loan.4 With whole life, universal life, and variable universal life insurance policies, there is a cash value savings component. In the case of an IBLOC, the cash value component may qualify as collateral if the policy has been maintained with the insurance carrier for a designated period of time.
Why Would a Client Want to Access a Policy’s Cash Value?
As an insurance policy’s cash value builds and dividend rates remain high, accessing the cash value is an easy way for a client to gain liquidity without the cumbersome process of applying for a personal loan. There are several reasons why clients may need to access liquidity, including paying off a higher-rate policy loan, obtaining a bridge loan when buying and selling real estate, to meet a capital call, or for education expenses.
A policy loan has long been the way many clients borrow from life insurance policies. This process is typically conducted through the insurance carrier. Though it is a simple way to access the cash value of a policy, depending on the carrier and the policy type, this approach can affect the dividend received and often comes with higher rates. Also, with this method, if additional funds are needed, a new policy loan must be requested.
An alternative process has your client borrowing from a bank, like the Institutional Banking team at The Bancorp Bank, that specializes in cash value loans. Accessing an IBLOC in this way is a preferred method of borrowing due to its simple application process, no application fees or closing costs, and the historically low rates which are currently available.5 With an automated underwriting process, The Bancorp works with financial professionals and clients directly to obtain an interest-only line of credit for up to 95% of the cash value of an eligible whole life insurance policy with no maturity date. With flexible conditions, this can be a cost-effective and more efficient way to access a loan.6
How Does a Client Apply for an IBLOC?
At The Bancorp, our Institutional Banking team is backed by more than 20 years of providing banking solutions for financial professionals and nonbank institutions. The team works directly with financial professionals to understand the wealth management strategy of their clients who may be looking to access a line of credit. The Institutional Banking business also provides technology-enabled banking services to help streamline the IBLOC application process through TALEA®, our proprietary loan origination platform that enables speed and simplicity. By applying for an IBLOC with The Bancorp, qualified borrowers can get access to liquidity quickly when they need it, without disrupting their current assets.
For more information or to contact our Institutional Banking team, visit https://institutionalbanking.thebancorp.com/.
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 and borrower must maintain a primary residential address in the U.S. 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, and Ameritas Life Insurance Corp. Other terms apply, See application for details. There may be adverse tax consequences when pledging the policy as collateral for a loan and as such, we strongly advise client consults with a tax advisor before pledging the policy.
2. Subject to credit approval and underwriting.
3. An IBLOC offered through The Bancorp Bank (“Bank”) 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 Bank may determine in its discretion, not to exceed ninety-five percent (95%).
5. The Bancorp Bank does not charge an application fee. State, local and/or third-party fees may apply in some states.
6. 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.
TALEA is a federally registered trademark and The Bancorp and TALEA are federally registered service marks of The Bancorp, Inc.