Margin loans put collateral at risk from sudden market swings you can't control. Policy loans fail slowly and visibly if you mismanage them, but the real danger is borrowing too much and letting the policy lapse, which triggers taxes.
if you have to collateralize something and that asset that you're collateralizing, you're not in control of whether it grows or shrinks. And that's what's actually being put as collateral. That's a problem, right? Because it's not ever increasing. You don't have ultimate control over the repayment and the access and how that goes about. But you also don't control whether or not the asset grows.
So when I contrast that with a policy loan, the risk that I see on the policy loan side is mismanagement, not volatility. So when you think of Nelson's third golden rule, don't steal the peas. So when you request and access a policy loan, you should have a plan to repay it. So I see the risk as mismanagement, because if you give someone total and absolute control over the repayment schedule of a loan, that can be equally risky as it is advantageous. It depends on the human condition. It depends on your temperament, your, your discipline. If your policy loans exceed safe thresholds, then your policy can be in a situation where it could lapse. There could be taxable consequences. But the difference is with a margin loan, the risk can be very fast and very uncontrollable, whereas with, with a policy loan, the risk is very slow, it's very visible, it's very controllable. And in other words, like, a margin loan could fail suddenly, but a policy loan could fail gradually and very visibly.
