Whole Life Insurance Loan Program
Receive up to 95% of your whole life policy’s cash surrender value
Should I Get a Loan From My Whole Life Insurance Policy?
You bought a whole life insurance policy ages ago, thinking you were investing in your future and the future of your loved ones. But after years of paying pricey premiums, the expense of that policy is wearing you down. You can’t help but wonder, should you surrender/cancel your whole life insurance policy and move on?
Surrendering your insurance does eliminate your premium payments, and to recoup some of the cash you’ve invested in the Policy over the years, but there are negative consequences, too. You’ll no longer have a death benefit and the cash payout on cancellation may be far less than what you’ve invested in the policy to date and, there may be federal and state taxes to pay from the surrender amount. Despite those negatives, giving up your coverage may feel like your only option.
Fortunately, surrendering isn’t the only option. It’s just one of several strategies available, and it’s usually the least beneficial of the bunch. You’ve probably heard about selling a policy to a third party. This is a “life settlement” and has been a valuable alternative to a policy surrender for policyowners for almost 30 years. The life settlement underwriting process involves providing confidential medical records/history/life expectancy estimates on the policy Insured. In addition, in the absence of the Insured having significant medical impairments, life settlements are typically available only for policies with Insured’s age 70 plus. And, as is the case with Surrenders, there may be substantial tax liabilities to the Seller on the sale proceeds received. Finally, with rare exception, settlements are available only on universal policies…whole life policies “need not apply”. (Note: Harbor Life has a relationship with an affiliate of the “Loan for Life” Program Lender which uniquely considers whole life policies submitted for the Loan Program for life settlement as well (without medical underwriting) and will often present both options to Harbor Life to compare.
The “Loan for Life™” Program
Harbor Life is one of a very select group of authorized Distributors of the “Loan for Life™” Program (the “Program), which meets the needs of policyowners who want to reduce their expenses, raise cash but without losing all of their death benefit as happens in a Surrender. Here are a few key benefits of the Program.
- No more premium payments. Once the Loan closes, you can choose not to pay any future policy premiums. The Lender will pay those premiums on your behalf and add all those costs to your loan balance.
- Access to cash. At closing, you will receive a “Loan for Life” cash payment. The payment amount is based on your policy details, but it’s normally 90% to 95% of the Policy’s cash surrender value.
- No interest to pay. You have no obligation to make any interest payments throughout the term of the Loan, but you can if you want to. Interest can be accrued throughout the life of the Loan.
- Death benefit stays in force. If you sell or surrender your life insurance, you lose the death benefit entirely. A Program Loan keeps your policy death benefit active and a participation in it available to your chosen beneficiary. When the policy Insured passes, the death benefit repays your Loan in full and the remainder is paid out, tax-free, to your loved ones. The Program Lender guarantees a fixed minimum death benefit payout, regardless of how long the loan is outstanding.
- No personal recourse. The Loan is due and payable only upon the death of the Policy Insured. As Borrower, you are never personably responsible for repayment. The only collateral for the Loan is the Policy.
- Loan interest rate is fixed for the entire term of the Loan. It can’t increase.
How Much Cash Can I Get From This Loan?
Here are a couple of case studies to demonstrate how each Policy’s cash value determines the amount of your Loan proceeds, and how the Loan affects your death benefit.
Case study 1:
- Current policy death benefit: $250,000
- Current cash surrender value of policy: $82,000
- Program Loan amount: The Program provided a Loan Commitment Amount of $78,000 (95% of cash surrender value) (less the Lender Arrangement Fee).
- Death benefit: The death benefit available to beneficiaries depends on how long the loan is outstanding. If the insured were to die within a few years after Closing, the designated beneficiaries would receive approximately $168,000 after repayment in full of the Loan balance due. As interest accrues and future premiums are added to the Loan balance, during the Insureds lifetime, the beneficial interest is decreased by approximately $10,000 p.a.
Case study 2:
- Current policy death benefit: $500,000
- Current cash surrender value of policy: $165,000
- Policy has a pre-existing loan of $80,000 which the Owner previously took to cover medical expenses.
- Program Loan Amount. A Loan Commitment of $165,000 (100% of cash surrender value) less the Lender’s Arrangement Fee was provided, of which $80,000 was used to pay off the existing Policy loan and the balance paid in cash to the Owner.
- Death Benefits. If the Insured dies within a few years after Closing the designated beneficiaries would receive approximately $300,000 (after the Loan is repaid). This amount reduces by approximately $15,000 p.a. as interest accrues and future premiums are paid by the Lender.
Am I Eligible for the Loan?
Most whole life policyholders are eligible for a Program Loan. The Program accepts single and joint life policies as loan collateral. Unlike a life settlement, your age, health, and life expectancy do not affect your eligibility or your potential cash proceeds.
How Long Does the Whole Process Take?
After Harbor Life Brokerage receives the in-force illustrations from your Insurer, you should have your Loan approved withing 7-10 days and cash paid out within 30 days.
What Is the Process to Apply for the Loan?
The loan application process is straightforward. There are four steps:
- Apply. You submit your request to Harbor Life for the Loan.
- Evaluate. Harbor Life Brokerage will ask your Insurer for several standard illustrations. An in-force illustration is a forecast of how your cash value balance will perform going forward. Harbor Life submits this information to the Program Lender for its evaluation and to determine the Loan amount available to you. You do not need to submit to a medical exam or provide any medical or financial records or information.
- Contract. Once you receive and approve the Lender’s Loan offers from Harbor Life, Harbor Life will request and receive the paperwork from the Lender to finalize your Loan.
- Payment. You will receive your Loan proceeds in cash after the Closing documents are signed and returned to Harbor Life/ the Lender and the Lender’s Collateral Assignment has been recorded by the Insurer.
Will I Have to Pay Any Interest on the Loan?
Your choice. Interest is applied to your outstanding loan balance, but those charges do not need to come out of your pocket. Should you so choose, they will be added to your loan balance, and accrued until the death of the Insured. You can let the interest charges accrue for the rest of the Insured’s life, without making a single payment on your Loan.
If at any time, your financial situation changes and you want to pre-pay the loan in full or make current interest payments, you can do so. Any such payments would decrease the final Loan Balance due and therefore increase the amount of the share of the death benefit that will be available to your beneficiaries later. Again, this is optional. You are under no obligation to repay the principal or make any premium or interest payments at all. In legal terms, the loan has recourse only against the Policy, not against the Borrower. This means you cannot legally be asked to personally repay any of the Loan.
Plus, no matter how long the Insured may live, the Program also guarantees a fixed minimum death benefit for your beneficiary. It is likely that your beneficiaries will receive much more than the minimum, never less.
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