Jayson Lowe explains that cash value in whole life insurance is equity, not cash, and policy loans don't stop its contractual growth. You can borrow up to 90% of the value, and that growth continues even after you take the loan. The cash value is guaranteed to match your death benefit by age 100 in Canada or 121 in the U.S.
One of the things that comes up often in conversation is so you know, if I'm able to borrow against the cash value in my policy to go and finance the things that I need or to, you know, invest or build wealth, is the money inside my policy going to continue growing? Here's what's so important to understand. Cash value is not money. So you don't have money inside of the policy growing, you have equity. And that equity can be converted into cash. It can be borrowed against without interrupting any of its ongoing accumulation. So I'll give you an example. If I have 100,000 of cash value in a policy and a million dollar total death benefit, that cash value isn't money. But the insurance company permits me to borrow against 90,000 of equity in the policy. So 90% of that 100,000 on I can borrow from the life insurance company on demand, on my terms. I control the repayment schedule. But the cash value the day I requested the loan was $100,000. The day after I requested the loan, it's going to be higher than $100,000. The reason is simple. The cash value of the policy is contractually guaranteed to match the total death benefit of the policy by age 100 of the life insured in Canada and age 121 of the life insured in the United States. So every single day, let's presume in this example that I'm the life insured and I'm the policy owner, every single day that I'm aging closer to 100 or 121, the total cash value of my policy is rising because it's contractually guaranteed to do that. When I exercise a policy loan and I borrow against that cash value growth, I'm not interrupting the contractual guarantee that it must continue growing uninterrupted. So where does that leave me? That leaves me in a position of total and absolute control. Because whatever, I used the life insurance company's money for, real money, the insurance company is not placing a lien on that for the loan balance, they're placing a lien on the death benefit. So if I took out 90,000 in policy loan proceeds, the insurance company is going to place a lien for 90,000 on the million dollar death benefit of the insurance policy. And the loan is not reported to TransUnion, it's not reported to Equifax, it doesn't impact my borrowing capacity from other financial institutions. It's a private loan between me, the policy owner and the life insurance company which I happen to co own. Meaning when you own A dividend paying, participating, whole life insurance contract. The word participating has meaning, it means that you co own that life insurance company. So I co own the lender. That leaves me in a position of total and absolute control. And when you borrow and you pay back principal and interest, that interest is profit. And so the more policy owners that are doing that, the more we're all collectively contributing to the net earnings of the life insurance company. Because they're not going to let money sit still, they're going to put it to work for my benefit, for your benefit. And we get to participate, hence the term dividend paying. We get to participate in the ongoing divisible surplus, the profitability of that business by way of dividends, and which if you handled them, property, you're not triggering any taxable event. And so when I remind myself of the fundamental truth that my money must reside somewhere, what better place to have it reside than here? And then from this place I can go and request policy loans and invest capital, purchase business equipment, purchase vehicles from my family, take my family on holiday, send my kids to post secondary education, anything that I would have otherwise paid cash for, leased or financed just using the life insurance company's money to do it without ever interrupting the accumulation of my own cash value and by proxy the ever increasing value of that asset. And I'm not triggering any taxable event in the process. It's brilliant.
