Everything has been going according to plan for Ben. After 3 years with his whole life policy, he notices that his car is pretty beat up and starts to think that he needs to get another one soon, or he’ll find himself without one. His situation doesn’t seem too different from before except that instead of extra money going into his mortgage company and company 401k’s, he’s now sending that money into his whole life policy.
In the past when he’s purchased a car, he’s borrowed the money from a bank. But he remembers that his adviser told him that there are certain privileges with his whole life policy that allow him to access his cash value and use this for whatever he wants.
So he sits down with his adviser and looks at the different scenarios that are available to him. He decides that he really doesn’t want to pay the bank interest to buy his car, and he has more options than he used to have. Because his cash value within his whole life policy is sitting at $57,812, he could take a withdrawal and pay cash for his car. He also knows that if he pays cash for it that he’ll never have the use of that cash again meaning that he won’t be able to invest the $30,000 and earn anything on it. He understands that this would be his Lost Opportunity Cost for paying cash. He’s getting this economics thing down!
He also considers taking a loan from the life insurance company that he is part owner of for $30,000 to buy the car. It’s his guaranteed right that they will lend him this money as a whole life policy owner and he knows he can then pay it back in any way that he chooses. If something comes up in their financial life, they would have flexibility where a bank would never give it! It’s nice to feel like an insider in the banking world for a change!
So, Ben decides to borrow $30,000 from the policy and pay it back over the next 36 months at a 10% interest rate. He doesn’t have to pay such a large amount, but since the excess interest over the low rate the insurance company charges goes to himself, it feels good to earn the profits of a banker! Now his policy will grow even more than it would if he had not taken the loan.
This is Part 4 in the story of Ben’s life using Whole Life Insurance in a variety of ways. You might want to read the introduction to this series which will link to each post in the series explaining how whole life works as well as linking to each post in this series on Ben’s story.
Photo credit: AutoBidsOnline