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By Michael Pilz
Special to the Financial Independence Hub
Life insurance policies can represent a significant, untapped source of capital. While life insurance is often strictly thought of as a death benefit, many permanent policies also have a cash component. This cash component can be leveraged to secure a line of credit that can be used for a variety of purposes, such as a means of supplementing retirement income or to access upfront capital quickly, perhaps to take advantage of an investment opportunity.
An insurance policy that has cash value should be on the table as an option for those who either need or want to access cash by using some of the assets built up over their lifetime. Thinking of insurance differently – and communicating how it can be used to create a living benefit – can open up a world of possibilities.
Rethinking Whole Life Insurance
Insurance policies are great investment vehicles for those who have an immediate need for death benefit coverage, and would also like to park and protect capital in a tax-sheltered vehicle during their working years. But what happens when those who are older, a sizeable chunk of cash has accumulated over the years, and there’s a better use for this cash now instead of passing it on to beneficiaries down the road? And what if they want to leverage the cash value of their policy while also leaving their policy intact?
The Equitable Bank Cash Surrender Value (CSV) Line of Credit enables borrowers to convert the value of their insurance policy into cash. It is a non-amortizing loan product secured against the cash surrender value of a whole life insurance policy. Unlike a traditional loan or line of credit, the interest from the CSV Line of Credit capitalizes and is typically repaid through insurance proceeds at the time of policy redemption. However, a borrower can also opt to make ongoing payments or to repay the entire loan at any time without incurring a penalty.
Does a CSV Line of Credit make sense?
Leveraging a life insurance policy’s cash value can help fulfill a variety of different needs or wants.
Many can benefit from tapping into the cash value that has built up within their policy during their working years to supplement retirement income later in life. High-income earners who run out of RRSP and TFSA contribution room and have excess cash may find their insurance policy especially valuable for this purpose. Think of it as killing two birds with one stone: during prime working years, a whole life insurance policy meets an immediate death benefit need while serving as a mechanism for building up a nest egg that can be leveraged in the future when there’s a need for cash.
An insurance policy’s cash value may also be accessed by borrowers later in life to help children (or grandchildren) with expenses like university tuition or a down payment, or to simply enjoy retirement at a time when a borrower may not have sufficient cash flow. By taking out a line of credit against the cash surrender value (as opposed to making a withdrawal), the policy’s CSV stays intact and gets the benefit of future growth. A primary advantage of a CSV line of credit for an aging demographic is that these borrowers may not necessarily qualify for a traditional loan.
An insurance policy is also a tax efficient way to accumulate and grow wealth; policyholders who take out a CSV line of credit – instead of making a withdrawal – avoid tax implications, allowing borrowers to enjoy tax-free cash flow.
The final word
All borrowers can benefit from accessing the cash value of their insurance policy to help them meet specific goals, regardless of the policy’s size. A CSV Line of Credit is an ideal product for any borrower with a whole life insurance policy who wants to access capital as part of their financial plans.
Michael Pilz, Senior Business Development Manager, CSV Line of Credit, is a dedicated, skilled and passionate Financial Services Sales professional. His 20 years of experience have provided him with specialized knowledge in insurance, investments and lending. He is dedicated to working with advisors to deliver meaningful solutions to their clients.
