so we had a recent question which is where is it better to take a loan from do I borrow directly
from my policy or should I take a loan from another source HELOC maybe it's a 0% interest
car loan maybe it's mortgage whatever it might be maybe it's a cash value life insurance alone that
I'm collateralizing whatever it might be what I want to do instead of saying one option is better
than the other because that's not the case is way at the pros and cons so a major advantage to
a policy loan is you have control when I borrow from the cash value of my life insurance policy
it collateralized as my death benefit I still continue to earn appreciation on my entire asset
so if I a hundred thousand let's say the dividend rate for simplicity is 6% I pull out $50,000 I'm
going to have annual simple interest of 5 to 6% that goes where that goes to the insurance company
now even though I'm paying the insurance company we can call them the lender for this example I'm
still receiving the same appreciation the same 6% dividend on the full 100 as if I never touched it
in the first place so when I borrow and repay everything's fully restored to what it would
have been otherwise now down here in this word of control why a lot of people are attracted to using
their cash value life insurance policies is when it comes to any kind of payments control is in the
policyholders hands I don't get monthly interest statements that I have to pay it back by a certain
point in time literally I can pay it back however and whenever I want provided the policy is not in
danger of lapsing or anything like that but I have control that's the attractive attractive
feature now on that point if I'm going to earn a 6 percent dividend whether I just let the money
sit and grow or pull it out the question comes up is hey if I just put my money in D cash value
of the policy and I have the six percent dividend and I can borrow at call it five percent or I can
obtain a loan over here at three percent maybe it's two percent or say it's a zero percent loan
interest car loan or something like that should I take the loan from the institution or should
I finance it through the policy well you can go either way using the policy gives you control you
can pay it back however you want if life happens you don't have any kind of billing notices comm
doesn't impact your credit nothing like that that's an attractive feature over here I can
get a much more attractive interest rate here's the thing though if I go to another institution
what am I going to give up a level of control where payments are going to be required often
monthly if it's a keylock what can happen here they can call it right so if the loan is called I
have to pay that back again I'm giving up control better interest rate and yes you could just borrow
from your cash value to satisfy the call so you kind of leverage both but I'm giving up a bit of
control here cash value collateral loans we've got a couple segments on those which I'd refer you to
if you have not seen yet this is literally taking my life insurance policy and assigning the portion
of the cash value as collateral to a lender to get a more attractive interest rate a lot like a line
of credit what it gives up is control or access of the cash value I can still access my cash when
I use this maybe I'll have a better interest rate let's say it's three or three and a half percent
but if I want to make any type of transaction with my policy there is now a collateral assignment on
that life insurance policy so if I want to borrow if I want to change beneficiaries do anything the
bank has to sign off on it so control is out of my hands in that respect big thing here is control I
also have payments that are gonna be do typically monthly to the lender the lending source really it
depends on the individual individual there are a lot of times one prefers a policy loan because you
don't have to worry about anything you pay it back however you want and the interest earned a lot of
times will offset that loan interest expense but if we're looking at the interest expense
and we have no problem if we're used to leveraging maybe youth to real estate or whatever it won't it
might be if we're used to borrowing you take the better interest rate if we're comfortable with
those payments there's nothing wrong with that weigh it out see the pros and cons of
whatever specific lending or loan product I'm looking at and then compare it here's the pros
and cons and then here's the pros and cons to borrowing directly from a life insurance policy