Working capital you can borrow against.
A well-funded life insurance policy builds cash value your business can borrow against for inventory, equipment, a key hire, or a slow month. There’s no credit check or loan application. The insurer charges interest, paid to the insurer, and the death benefit stays in place while the policy is in force, reduced by any loan balance. We build it on participating whole life or Indexed Universal Life, depending on how you’ll use it.
Business opportunities don’t wait for approval.
Inventory at a discount, an equipment deal, a payroll bridge between invoices: each one usually means a loan application, a credit review, and terms set by the lender. Lines of credit help, but the lender can reduce or freeze them, sometimes when conditions tighten.
A policy built for working capital gives your business a reserve you can borrow against with a loan request to the insurer. The insurer makes the loan and charges interest, paid to the insurer at the rate the contract sets. Bank financing still has its place: it can fund larger amounts, and its rate may be lower. Many owners use both.
What business borrowing usually involves
- An application and a credit review for each request
- Covenants and a payment schedule set by the lender
- Often, a personal guarantee
- Lines of credit the lender can reduce or freeze
Borrowing against a policy, for your business.
The mechanics are the same whichever policy you choose.
Request a loan
Send the insurer a loan request, up to the loan value the contract sets. There’s no credit check or approval process, and you don’t have to say what the money is for. Funds usually arrive within a few business days.
The insurer lends, your cash value secures it
The insurer lends you its own money and holds your cash value as collateral. The loan charges interest, paid to the insurer. How the rest of your cash value grows while the loan is out depends on the policy (see below).
Repay from revenue
There’s no required repayment schedule, so a slow quarter doesn’t mean a missed payment. Repaying restores what you can borrow next time. Unpaid interest is added to the loan, and any balance outstanding reduces the death benefit.
Two ways to build the reserve.
Both policies build cash value you can borrow against. They grow differently, and that changes how a loan plays out.
| Participating whole life | Indexed Universal Life | |
|---|---|---|
| Premium | Fixed; due every year of the premium-paying period | Flexible within limits; paying too little can cause a lapse |
| Cash value growth | Guaranteed schedule, plus dividends (not guaranteed) | Index credits within a cap and a 0% floor, minus policy charges; cash value can decline |
| While a loan is out | Depends on the carrier: with non-direct recognition the dividend is figured the same; with direct recognition it’s adjusted, up or down, on the borrowed portion. Loan interest accrues either way | In many designs, the full account value keeps earning index credits while loan interest accrues; the spread can be positive or negative |
| Suits a business that | Wants predictable values and plans to borrow and repay often | Has uneven income and a long horizon, and wants flexible funding, with more year-to-year variation |
| Framework | Banking Action Plan | Designed in your strategy session |
Dividends aren’t guaranteed, and the insurer sets them each year, but many participating carriers have paid dividends every year for decades. IUL caps (upper limits on index credits) and other non-guaranteed elements can change within contract limits. See the full comparison.
Fund, borrow, repay, repeat.
Fund the policy
Direct retained earnings or planned premiums into the policy, at a level the business can keep up every year, and let cash value build.
Borrow for the opportunity
Inventory, equipment, a hire, or a payroll bridge. Request a policy loan and put it to work, with no credit review.
Repay and go again
Repay from the revenue the purchase brings in. What you can borrow restores, ready for the next one.
Questions we hear about working capital.
How fast can my business get the money?
Insurers usually fund a policy loan within a few business days of the request. There’s no application or approval process once the policy has cash value to borrow against.
What does a policy loan cost?
The insurer charges interest at the rate the contract sets, which may be fixed or variable, and the interest is paid to the insurer. What the loan really costs also depends on how the policy keeps growing while it’s out: dividends on whole life, which aren’t guaranteed, or index credits on IUL, which can be 0% in a down year. We walk through it on your policy before you borrow.
What if the business can’t repay for a while?
There’s no required repayment schedule. Unpaid interest is added to the loan, and any balance outstanding is subtracted from the death benefit. If the loan grows larger than the cash value, the policy can lapse, and the gain can become taxable. We help you keep the loan balance in a range the policy can carry.
Can the business own the policy?
Often, yes, depending on how the business is set up and who is insured. Ownership affects taxes and who controls the cash value. Premiums generally aren’t deductible, and when a business owns a policy on an employee or owner, federal rules (IRC 101(j)) generally require the insured’s written notice and consent before the policy is issued to keep the death benefit income-tax-free. We work through it with you and your CPA.
Are policy loans taxable?
Under current tax law, a policy loan is generally not taxable income while the policy stays in force and is not a modified endowment contract (MEC). We design the funding to stay within the federal limits that keep a policy from becoming a MEC.