Which lenders offer collateral assignment loans?

Posted: Fri Jan 04, 2013 05:42 pm Post Subject:

You will be able to get or not get a loan based upon your general credit worthiness. The life insurance policies on their own won't allow you to get the loan. They will only be helpful to the extent that their is concern about repayment at your death.

In other words, if you aren't a good enough credit risk, the life insurance won't change this.

Posted: Thu Apr 25, 2013 02:51 pm Post Subject: Need a lender that does collateral assignment loans

Does anyone know of a Lender that does collateral assignment loans?

Posted: Thu Apr 25, 2013 04:35 pm Post Subject:

If you need collateral, it means that the lender doesn't trust that you'll pay back the loan. If you aren't going to die soon, a term policy is pretty bad collateral.

Posted: Sat Dec 06, 2014 05:12 pm Post Subject: term life insurance as collateral

$100,000 term life insurance issued in 2004. How can a portion of this be used to secure loan for personal debt

Posted: Thu Dec 11, 2014 06:29 am Post Subject: loan using life insurance as collateral

Can I find a lender

Posted: Tue Jan 27, 2015 02:38 pm Post Subject: collateral assignment

I was hoping to get a collateral loan to clean up some bills and have some savings set up. I have a GUL policy for 260K, that i am putting in cash accumulation as well. Any ideas of banks in iowa that would do a collateral loan against it?

Posted: Tue Jan 27, 2015 06:36 pm Post Subject:

How much do you need to borrow and how much cash surrender value do you have in your life insurance policy? What is your age? In your situation, you may just need a different plan to get out of debt without more borrowing. Have you even considered that as an alternative?

Borrowing from your GUL policy would be likely to terminate the guarantees, but you have to read the contract to see for sure. Making a collateral assignment of the death benefit would probably not do that.

However, simply having a $260,000 policy does not mean that you will find someone willing to take a collateral assignment. Your general creditworthiness will determine that, just like any other loan.

There are, to the best of my knowledge, no banks that "specialize" in taking collateral assignments of life insurance. They always look at each loan application on its own merits. If you have other collateral, such as a home, they would be more interested in that, because it is a "marketable" asset.

Life insurance is an illiquid asset. In other words, you could put an ad in a newspaper, "For Sale: $260,000 Life Insurance policy. $10,000 down and take over payments." and probably never receive an inquiry. Liquid assets are those which have a ready and willing pool of buyers waiting to make a purchase. Don't believe an insurance agent or real estate agent who tells you that your life insurance or the home you plan to live in is an investment.

Having said that, there are "investors" looking to buy high value life insurance policies . . . from very old or very sick persons who are not expected to live much longer. But they generally are looking for policies valued at $500,000 to $1,000,000 and higher, because they are trying to make a quick profit on the deaths of human beings. This is part of what's known as the life settlement business, and it is now highly regulated by most states. There have been many unscrupulous companies operating in this arena for the past 10-20 years, and thankfully most are out of business today. Many of the Life Settlement companies operating today are reputable and completely above board, but there are still some flakes out there. So caveat emptor.

Investments are either liquid or illiquid, and a person who owns an illiquid investment must find his or her own purchaser in the event of a need to sell. A person's own residence and life insurance are illiquid assets, and generally not considered investments. Try selling your home when interest rates are high, unemployment is out of control, you are being relocated by your employer to avoid unemployment, and your home is appraised at $100,000 less than what you owe the mortgage lender. A veritable impossibility. Ask anyone who experienced that in the past 5-7 years.

On the other hand, homes or other real estate a person owns which are intended to provide regular income are in a different category. Those are investments, but still considered illiquid -- because they are only marketable if there are willing buyers. On the other hand, stocks and bonds traded on exchanges are generally considered liquid because there are investors waiting to buy if someone is willing to sell. But even a stock or bond can become illiquid if the corporation goes bankrupt -- such as an Enron or Global Crossing -- leaving investors with nothing to show for their investment.

The bank would look at life insurance in the same manner. If you default on the loan, and you stop paying insurance premiums, what do they have? A debt with little chance of collecting unless they keep making the premium payments until you die, because they probably can't sell the policy to someone else if you're under 70 or 80 years of age under those conditions. At least it's still a crime for them to hire someone to "take care of you" so they could collect the death benefit.

Universal life insurance presents its own set of challenges as well. Because the Cost of Insurance RATE is unrelated to the premiums you are paying, which are probably minimal, and you may not even have much in the way of cash value at all, it actually increases every year. The Cost of Insurance DEDUCTION is directly related to your cash accumulation. With little or no cash accumulation, the deduction increases annually (or even monthly in many contracts), and will eventually exceed your "scheduled" premium.

That's why you are paying extra for the "guaranteed" death benefit, and why borrowing from the cash value or taking a partial surrender usually terminates the guarantee. If you lose the guarantee, then you will eventually be forced to pay considerably higher premiums and risk lapsing the policy because it lacks cash accumulation value.

And that's why the bank would be unlikely to look favorably on taking your collateral assignment if your creditworthiness is not pristine.

The most common use of collateral assignment of life insurance proceeds is in the business world. A corporation will purchase and pay for a large life insurance policy on its CEO and other high-ranking or specially skilled employees as a side benefit intended to keep them on staff, with the understanding that the corporation will recoup the premiums it paid when the executive dies. The executive's beneficiary receives the full amount of the promised death benefit, and the corporation gets back all the premiums it paid, because the face amount of life insurance is "grossed up" each year by the cumulative amount of premiums paid. The executive must sign a collateral assignment agreement to permit this.

If the executive later chooses to leave the company, he may have the right to purchase the policy from the corporation for the amount of premiums it paid. He can do this by allowing the corporation to withdraw its cost-basis and obtaining a release of the assignment from the corporation. The corporation, as policyowner, can also borrow or withdraw some or all of its cost-basis at any time, reducing the amount of remaining collateral assignment. If the corporation does not sell/transfer ownership of the policy to the executive, it has the legal right to continue paying premiums and collect the full death benefit when the executive later dies.

Posted: Wed Mar 25, 2015 03:34 am Post Subject:

have a million dollar term life ins policy, need to have 350,000.00 to pay off a debt. Live in NC,

Posted: Wed Mar 25, 2015 03:01 pm Post Subject:

Not likely to happen. You have a policy with no cash value and a limited duration. If you can't show the means to repay the existing $350,000 debt, how would you show the means to repay a $350,000 life insurance loan if you don't die before the policy does?

Posted: Wed Apr 29, 2015 11:43 am Post Subject:

I'm a banker and recently looked into getting a loan against CV in a policy I have as well. My bank (and the 2 other major commercial banks I spoke to), will consider CV in a permanent policy (not a term policy), as collateral for a personal loan, but not until you're in the "Private Banking" realm. In other words, if you're not moving $1 million or more to their bank, and the policy is not worth > $250k, they really have no interest in entertaining this. All 3 banks had the same view on this... it won't get done in a retail branch - only in the wealth management or private banking arm. So keep paying your premiums and make sure your family is protected. Find another way to borrow the money you need. So, to the person with the client with $100MM in life insurance - the big question is what is the CV?