Policy loans don't show up on credit reports because they're private between you and your insurer. The insurer secures the loan with your policy's cash value and can deduct what you owe from your death benefit. You can repay whenever you want, skip payments, or take your time, unlike a bank loan.
Questions this video answers
Created and uploaded by Jayson Lowe on November 24, 2021.
No — policy loans are private between you and the life insurance company and are not reported to credit bureaus.
No — there is no formal repayment schedule; the policyholder controls when and how to repay and can miss payments if desired.
Chapters
The bank wants to know if they're dealing with the right person who is disciplined and who pays bills on time, who pays loans on time. And they want to make sure that they get their money back. With insurance company, the situation is a little bit different. So the insurance company has the best collateral in the world.
Today we're going to talk about four franchises frequently asked questions that we get related to whole life insurance. My name is Dan and I'm here with my colleague Roman and we both work with Ascended Financial. Quite often we get different questions related to whole life insurance. So we thought we'd just do a little video today to help answer some of those questions that are frequently asked. So the first one is, does a policy loan show up on a credit report or does it impact your credit score? Well, the real short answer to that one is no. And it's just a private deal between you and the life company.
This loan is a private loan between insurance company and yourself. And no one knows that you have a loan outstanding because the credit bureau is usually used by banks where they need to know if the customer is credit worthy to pay back. The the bank wants to know if they're dealing with the right person who is disciplined and who pays bills on time. Who pays loans on time. And they want to make sure that they get their money back. With the insurance company, the situation is a little bit different. So the insurance company has the best collateral in the world. They have your cash value as a collateral and they put a lien on a death benefit. So in the worst case scenario, if the client doesn't pay the loan back and he passes away, then what happens is the insurance company takes the death benefit, deducts the outstanding policy loan and interest the remainder they pay to the beneficiaries. That's why they don't really need to check your creditworthiness and they do not report the outstanding loan to the credit bureaus.
A bank's always worried about. No, they don't want to have to foreclose on anybody and go through all the hoops that that takes. They just don't want to go through that. They'd rather do check that credit report and have a good sense that you're going to be very conscious in paying back your loan. That stream of payments is what they're interested in and not owning that home if that's what you had the loan out again. So that's a great way to answer that one. So the second one, does whole life insurance come with creditor protection? Now that's A interesting question. And, you know, it really matters on a few things. So if you have taken out whole life for the purpose of protection for your family and you have your beneficiaries listed as family members, there will be creditor protection with that contract. Now, if you thought you were headed towards maybe potentially you're headed towards bankruptcy, and you figure, okay, well, what I'm going to do is I'm going to start putting some of the capital that I've got access to right now into a whole life insurance policy, thinking that's going to protect me from my creditors having a good run at that. All bets are off because again, it comes back to what your objective is and why you're doing that. So if you know, if that's your reason for using it, well, then you might be in court and fighting that out with your creditors as to whether that's actually there for protection or not. The other one that I always mention is corporate ownership. So if a whole life insurance policy is owned by a corporation, well, you need to talk to a licensed life insurance agent just to find out all the nuances there. So, you know, it may not have the protection that you would hope it would have from creditor protection. So just be aware of that. And, you know, the one that I always tell people is, is that if it's a personal whole life insurance policy and you've got your family listed as beneficiaries, you're going to have creditor protection. And that's the one way to answer that question. All right, Roland, what would happen if someone had a schedule and they couldn't make a payment on any given month or period of time?
What happens is the insurance company is not going to call you. The insurance company is not going to ask why you missed the payment, why you are not paying on time. In fact, there is no repayment schedule because you get to determine when and how to pay the loan back. And you can miss one payment, you can miss two payments, you can miss a whole year of payments if you want to. Again, we always discover this process in this amazing book, becoming your own Banker. We always teach that you are in control. This is your own bank. And you as a banker get to decide how to pay this loan back and when to pay it back.
It's really about control, right? You have that control. And it's so nice to, you know, something does go, you know, tough for you for a month or two. You get the latitude to decide, okay, I'm not going to, you know, I had a schedule, but I Can't follow it right now. You get that latitude. It's just a great sense of peace of mind that comes with this process. Again, as Roman said, you know, we're always going to coach. You have a plan to pay it back because, you know, it's. It's the best. It's a, you know, we. If you're using that for policy loans, you know, it's always better to pay back your policy loan if at all possible. And then you get to access whatever you pay back again. And it just works great. If something changes, you know, God forbid you lose your job or something like COVID pandemic happens again and you're. Things change on you, gives you flexibility. And that's one thing I like about policy loans. It's really unlike anything else that you have out there from that perspective. So the next question we get asked from time to time is kind of an interesting one. And it's just like, well, what happens if I can't make my premium payment? That's a really interesting question. So first and foremost, you know, what I would say is, you know, it depends on what, you know, how long you've been into the policy for. So if it's in the first year, that's not very much an ideal situation. Now, when we design a policy, we always keep flexibility in mind. That's one thing. If you're working with somebody else, they should give you flexibility so that, you know, you could pay less than the total premium. And that's just something we do with all of our clients just in case something happens, gives you flexibility. So if you couldn't now for some reason, let's just say two or three years out, five years out, you can't make a premium payment. Well, what you want to do is look at your options. So if you have cash value built up in your policy, that. That may be one option that you can use. And I've seen that done, and it works very well. The other thing that you can do is even talk to the Life company. We do that on behalf of our clients. We'll have a conversation with the Life company saying, okay, this person's in a position where they can't make their premium payment this month. What are the options? And we go through those options. They will work with you to help you out. If you get into that situation in your life, always have flexibility when you start, not something in. No matter who you're working with, they should be able to give you flexibility. Just because, like Roman said, life happens and you want flexibility and just so if you get into that situation, you can make a change and hopefully you can get back to where you were down the road. But just make sure you ask the right questions, no matter who you're working with. So those are the four kind of questions that we get asked quite frequently that we wanted to answer for you today. Now I'm going to encourage you now if you have other you have thoughts or comments related to this or other questions related to whole life, we'll just put them in the comments below this video and we'd love to answer those questions for you.
