Non-Direct Loan Recognition
A “privatized banking” policy has a specific feature designed to allow the policy owner access to money through non-direct loan recognition from the insurance company. In other words, the insurance company will loan you money from their assets using your death benefit, cash value, and cash surrender value as collateral up to the amount of cash surrender value you have in the policy. This allows for your entire cash value to remain inside the contract and continue earning dividends and interest as if you did not take any money from the policy.
This is an important point to grasp because without fully understanding this loan provision it will be difficult to understand why anyone would use this concept in their financial planning.
So, let’s say you have $100,000 in cash value within your policy earning 7% and you take a loan of $30,000 to purchase an automobile at 5% (these loans can be fixed or variable. The insurance carriers that I use cap their loans at 5%) from the insurance company. By taking the money as a loan, your $100,000 remains in the policy and continues to grow. In this example, you are earning 2% on the money borrowed.
Are You A Candidate for Privatized Banking?