“I’m sorry, Mrs. Pearson. We could not have seen this coming. Jack was a great man. He was so young, we had not discussed planning for this moment.”
As an advisor, you hope never to have to say those words, and that is why you offer your clients alternatives to protect their families in the event of their untimely passing. It can be a difficult subject to broach, but an uncomfortable conversation now is certainly preferable to a disastrous outcome for the family later. In your practice, you might offer clients a wide array of solutions tailored to fit their needs; term, universal and whole life policies all accomplish different purposes in a portfolio.
Whole life policies, in particular, can serve needs beyond protecting your client’s survivors. Whole life policy holders can utilize the cash-value accrued on their policies for expenses during their life, or collateralize them toward loans they can use to fund business needs. But you may have stopped to ask yourself: “When can whole life policies lose value?”
When a client takes a loan on their whole life policy through their carrier, they may experience high interest rates, as the carriers themselves must put aside additional reserve capital to account for the loan. The cost of borrowing might eventually begin to decimate a policy-holder’s cash value, particularly in low-interest rate environments where dividends are likely to fall short of the borrowing rates.
At that point, your client might worry that they can’t keep up with paying their premiums and servicing the interest on their loans. If cashflow required them to borrow in the first place, they may not have access to the funds necessary to keep their policy active. In these circumstances, your client may be forced to let their policy lapse, forfeiting their cash value to satisfy their outstanding debt.
This scenario plays out frequently with whole life policies, particularly for clients who are business owners and require ongoing cashflow to fund their projects. However, a lapsed policy leaves your client, and you, at the mercy of that unfortunate conversation – no coverage to protect their family and heirs if they should pass unexpectedly.
Until recently, there was not much that you could do to protect your client from such a situation, except perhaps convince them never to borrow from their policy. However, cash value is one of the most advantageous benefits of whole life insurance, and access to cashflow, particularly in the form of a loan, can breathe life into your client’s business, or help them finance their children’s college education; which is probably why you advise them to invest in whole-life coverage to begin with. Some smaller banks might provide financing based on the policy at more attractive rates than the carrier-issued loans, but as a rule, they will access your client’s credit history and list a debt with the credit reporting agencies, which will be reflected if they need access to capital.
Luckily, there is a new alternative available that can save your client money on interest rate, while still preserving the integrity of their credit rating. Kensington Financial Associates understands the value of whole-life and of cash-value, so our financing alternatives are collateralized directly to the policy, without imposing credit checks on your client. With an online platform that can process your client’s application seamlessly and fully electronically, you can expect funding in their account in a fraction of the time of what it might take with a traditional bank. With KFA, the most difficult conversation you’ll need to have with your client is: How do we invest these savings?