The Easy Way to Reduce the Interest Rate on Your Life Insurance Policy Loan

Many real estate investors are aware that high-cash value, or overfunded, life insurance policies are designed to maximize the cash value instead of the death benefit. The cash value growth is typically 5+% tax-free and can have uninterrupted compounding even if policy owners access the cash. It is an ideal place for investors to store cash while waiting for investment opportunities.


When the money is accessed through a loan against the policy and used in an investment, money is working in two places at the same time.  Investors can often find favorable arbitrage with investments like ATMs or hard money loans that cash flow well above the interest rate on the loan.


A Lesser-Known Option

The default option is a policy loan provided by the life insurance company with an interest rate that is typically fixed at around 5%. Some older policies may even have interest rates as high as 8%. However, investors can achieve a lower interest rate and widen the arbitrage opportunity by obtaining lines of credit provided from banks which use the collateral from the cash value of the life insurance policy. At the time that this article was written, the interest rates are based off the prime rate with a margin ranging from 0% to negative 1.25%. The banks require a minimum cash value and rates move lower with higher cash values. Plus, multiple policies can be combined for these thresholds.


The typical rate for cash value above $65,000 is prime minus 0.50%; between $250,000 and $1 million is prime minus 1.00%; and above $1 million is prime minus 1.25% with a floor of 3.00% to 3.25%. These rates can be better than rates on home equity lines of credit (HELOC) for primary residences. Even after a 0.75% increase in the prime rate to 4.00%, the rate can still be at the low-to mid 3% level. With an expectation that the Federal Reserve will raise rates by 0.50% each for the next two FOMC meetings, the rate may go up to 4.00% to 4.50%, but it should still be lower than the rate on the policy loan. If the Fed continues to raise rates and prime ends up be above 6%, causing the rate on these lines to go above 5%, the policy owners always have the option to assign the collateral back to the insurance company to return the policy loan back to 5%. If there is an outstanding balance on the line of credit, a policy loan can be taken out to pay off the line.


How to obtain a bank loan from your cash value

 The process to get a cash value line of credit (CVLOC) is easy. The owner transfers the assignment of the life Insurance policy as collateral from the life insurance company to the bank. It involves some very light paperwork with forms that are sometimes only a few pages from the bank and the insurance company. Credit checks will likely be part of the process. But it is nothing like the lengthy process of obtaining a loan to purchase a home. The whole process is typically one to two weeks. Some insurance companies may require a bit more paperwork or notarization that lengthens the process.


Better than a HELOC?

 The CVLOC works like a HELOC. Because it comes with a checking account and has online banking access, this line of credit allows policy owners to access money much sooner than an insurance policy loan that typically takes at least three business days. Unlike a HELOC, it does not require closing fees or appraisals. If the cash value increases after the CVLOC is established, getting a line increase is simple. All that is required is obtaining a status report from the insurance company or agent showing that the cash value has increased.


To get an increase on a HELOC, you may need to pay an early termination fee, an appraisal update, and a recording fee. Owners may obtain lines of up to 95-100% of the life insurance cash value versus 80% for the HELOC (and this is combined with the primary mortgage).  Also, there are not as many fees compared to a typical checking account. Some banks will even do wire transfers for free.


Furthermore, the interest on borrowed funds may be tax deductible if they are used for business purposes. Also, the CVLOC should not show up on credit reports if the owner can prove that they are using the line for business, rather than personal, purposes. Banks that provide these loans will often allow the interest to be capitalized to the outstanding balance. This provides the policy owner with flexibility if there is a dip in incoming cash flow.


What are the drawbacks of using a cash value line of credit?

 First of all, the death benefit will be reduced by the drawn amount, but this is no different than with a direct insurance policy loan.


If the borrowed funds are above the cash value, the policy owner runs the risk of the policy lapsing or being surrendered and, in the process, will trigger a taxable event. However, this is generally difficult to do especially if the dividend rate earned from the insurance company is higher than the interest rate on the borrow funds. Also, most banks only allow the line to go to 95% of the cash value which provides a good safety cushion.


CVLOC users may lose a little bit of control versus a traditional policy loan. If you ever decide to change beneficiaries or owners, you will need the bank to sign off. When the collateral assignment stays with the insurance company, you would not need the bank’s permission for these items. But you could easily re-assign the collateral back to the insurance company and refinance the line of credit with a policy loan to regain these controls if the bank prevented the policy owner from making these changes.


Which bank should you use?

 There may be more than half a dozen banks that do lines of credit on whole life policies. Here are the more popular ones I researched and why you may consider any one of these.


Currently, I use Bancorp’s Insurance-Backed Line of Credit because they have the lowest floor of 3.00; however, if prime rate goes up, this may not matter as much.


Coastal State Bank’s Cash Value Line of Credit will give you the highest line amount – 100% of cash value – if you have a credit score of over 750. However, Coastal State Bank requires a higher minimum of $100,000.


Investors Bank’s Personal Insurance Line of Credit is the only one that has no limit on the number of credit increases. All other banks only allow credit increases twice per year. Having no limit on credit increases may be optimal if you have more than two policies, and you want the line increase right after the cash value increased when premiums have been paid and dividends are received on the anniversary date. But Investors Bank requires policies to be at least one year old. So, if you are starting new policies, you may have to stick with one of the other banks first before moving to Investors Bank. By the way, you can easily refinance and switch banks. There aren’t any fees or penalties to get out or to transfer to a new one. It is not like a home loan where you have closing fees that can be a few thousand dollars.


M&M Bank’s Life Equity Loan has the highest rate floor, and they are the only ones that charge interest on a quarterly basis.  


The table below summarizes each of these four banks as it relates to these insurance-backed lines of credit.

Chuck Situ is a corporate bond and equities analyst for an investment management firm. He started owning real estate with a condominium in New York City and renting out one of the spare rooms to roommates. Over the years Chuck purchased additional small multi-families and single-family homes. After seeing the difficulty in scaling rentals and the time required managing property managers, he transitioned toward passive investing in syndications in 2021. He invests in ATMs, multi-family apartments, affordable living facilities, self-storage, mobile home parks, resorts, short-term rentals, and private loans.

Nothing on this website should be considered financial advice. Investing involves risks which you assume. It is your duty to do your own due diligence. Read all documents and agreements before signing or investing in anything. It is your duty to consult with your own legal, financial and tax advisors regarding any investment.

Chris Franckhauser

Vice President of Strategy & Growth, Advisory Partner

Chris Franckhauser, Vice President of Strategy & Growth, Advisory Partner for Left Field Investors, has been involved in real estate since 2008. He started with one single-family fix and flip, and he was hooked. He then scaled, completing five more over a brief period. While he enjoyed the journey and the financial tailwinds that came with each completed project, being an active investor with a W2 at the time, became too much to manage with a young and growing family. Seeing this was not easily scalable or sustainable long term, he searched for alternative ideas on where to invest. He explored other passive income streams but kept coming back to his two passions; real estate and time with his family. He discovered syndications after reconnecting with a former colleague and LFI Founder. He joined Left Field Investors in 2023 and has quickly immersed himself into the community and as a key member of our team.  

Chris earned a B.S. from The Ohio State University. After years in healthcare technology and medical devices, from startups to Fortune 15 companies, Chris shifted his efforts to consulting and owning a small apparel business when he is not working with LFI (Left Field Investors) or on his personal passive investments. A few years ago, Chris and his family left the cold life in Ohio for lake life in the Carolinas. Chris lives in Tega Cay, South Carolina with his wife and two kids. In his free time, he enjoys exploring all the things the Carolinas offer, from the beaches to the mountains and everywhere in between, volunteering at the school, coaching his kids’ sports teams and cheering on the Buckeyes from afar.  

Chris knows investing is a team sport. Being a strategic thinker and analytical by nature, the ability to collaborate with like-minded individuals in the Left Field Community and other communities is invaluable.  

Jim Pfeifer

President, Chief Executive Officer, Founder

Jim Pfeifer is one of the founders of Left Field Investors and the host of the Passive Investing from Left Field podcast. Left Field Investors is a group dedicated to educating and assisting like-minded investors negotiate the nuances of the passive investing landscape and world of syndications. Jim is a former financial advisor who became frustrated with the one-path-fits-all approach of the standard financial services industry. Jim now concentrates on investing in real assets that produce cash flow and is committed to sharing his knowledge with others who are interested in learning a different way to grow wealth.

Jim not only advises and helps people get started in passive real estate syndications, he also invests alongside them in small groups to allow for diversification among multiple investments and syndication sponsors. Jim believes the most important factor in a successful syndication is finding a sponsor that he knows, likes and trusts.

He has invested in over 100 passive syndications including apartments, mobile homes, self-storage, private lending and notes, ATM’s, commercial and industrial triple net leases, assisted living facilities and international coffee farms and cacao producers. Jim is constantly looking for new investment ideas that match his philosophy of real assets producing cash flow as well as looking for new sponsors with whom he can build quality, long-term relationships. Jim earned a degree in Finance & Marketing from the University of Oregon and a Master’s in Business Education from The Ohio State University. He has worked as a reinsurance underwriter, high school finance teacher, financial advisor and now works exclusively as a full-time passive investor. Jim lives in Dublin, Ohio with his wife, three kids and two dogs. In his free time, he loves to ski, play Ultimate frisbee and cheer on the Buckeyes.

Jim earned a degree in Finance & Marketing from the University of Oregon and a Master’s in Business Education from The Ohio State University. He has worked as a reinsurance underwriter, high school finance teacher, financial advisor and now works exclusively as a full-time passive investor. Jim lives in Dublin, Ohio with his wife, three kids and two dogs. In his free time, he loves to ski, play Ultimate frisbee and cheer on the Buckeyes.

Chad Ackerman

Chief Operating Officer, Founder

Chad is the Founder & Chief Operating Officer of Left Field Investors and the host of the LFI Spotlight podcast. Chad was in banking most of his career with a focus on data analytics, but in March of 2023 he left his W2 to become LFI’s second full time employee.

Chad always had a passion for real estate, so his analytics skills translated well into the deal analyzer side of the business. Through his training, education and networking Chad was able to align his passive investing to compliment his involvement with LFI while allowing him to grow his wealth and take steps towards financial freedom. He has appreciated the help he’s received from others along his journey which is why he is excited to host the LFI Spotlight podcast and share the experience of other investors and industry experts to assist those that are looking for education for their own journey.

Chad has a Bachelor’s Degree in Business with a Minor in Real Estate from the University of Cincinnati. He is working to educate his two teenagers in the passive investing world. In his spare time he likes to golf, kayak, and check out the local brewery scene.

Ryan Steig

Chief Financial Officer, Founder

Ryan Stieg started down the path of passive investing like many of us did, after he picked up a little purple book called Rich Dad, Poor Dad. The problem was that he did that in college and didn’t take action to start investing passively until many years later when that itch to invest passively crept back up.

Ryan became an accidental landlord after moving from Phoenix back to Montana in 2007, a rental he kept until 2016 when he started investing more intentionally. Since 2016, Ryan has focused (or should we say lack thereof) on all different kinds of investing, always returning to real estate and business as his mainstay. Ryan has a small portfolio of one-to-three-unit rentals across four different markets in the US. He has also invested in over fifty real estate syndication investments individually or with an investment group or tribe. Working to diversify in multiple asset classes, Ryan invests in multi-family, note funds, NNN industrial, retail, office, self-storage, online businesses, start-ups, and several other asset classes that further cement his self-diagnosis of “shiny object syndrome”.

However, with all of those reaches over the years, Ryan still believes in the long-term success and tenets of passive, cash-flow-focused investing with proven syndicators and shared knowledge in investing.

When he’s not working with LFI or on his personal passive investments, he recently opened a new Club Pilates franchise studio after an insurance career. Outside of that, he can be found with his wife watching whatever sport one of their two boys is involved in during that particular season.

Steve Suh

Chief Content Officer, Founder

Steve Suh, one of the founders of Left Field Investors and its Chief Content Officer, has been involved with real estate and alternative assets since 2005. Like many, he saw his net worth plummet during the two major stock market crashes in the early 2000s. Since then, he vowed to find other ways to invest his money. Reading Rich Dad, Poor Dad gave Steve the impetus to learn about real estate investing. He first became a landlord after purchasing his office condo. He then invested passively as a limited partner in oil and gas drilling syndications but quickly learned the importance of scrutinizing sponsors when he stopped getting returns after only a few months. Steve came back to real estate by buying a few small residential rentals. Seeing that this was not easily scalable, he searched for alternative ideas. After listening to hundreds of podcasts and attending numerous real estate investing meetings, he determined that passively investing in real estate syndications was the best avenue to get great, risk-adjusted returns. He has invested in dozens of syndications involving apartment buildings, self-storage facilities, resort properties, ATMs, Bitcoin mining funds, car washes, a coffee farm, and even a Broadway show.

When Steve is not vetting commercial real estate syndications in the evenings, he is stomping out eye diseases and improving vision during the day as an ophthalmologist. He enjoys playing in his tennis and pickleball leagues and rooting for his Buckeyes and Steelers football teams. In the past several years, he took up running and has completed three full marathons, including the New York City Marathon. He is always on a quest to find great pizza, BBQ brisket, and bourbon. He enjoys traveling with his wife and their three adult kids. They usually go on a medical mission trip once a year to southern Mexico to provide eye surgeries and glasses to the residents. Steve has enjoyed being a part of Left Field Investors to help others learn about the merits of passive, real asset investments.

Sean Donnelly

Chief Culture Officer, Founder

Sean holds a W2 job in the finance sector and began his real estate investing journey shortly after earning his MBA. Unfortunately, it could not have begun at a worse time … anyone remember 2007 … but even the recession provided worthy lessons. Sean stayed in the game continuing to find his place, progressing from flipping to owning single and multi-family rentals to now funding opportunities through syndications. While Sean is still heavily invested in the equities market and holds a small portfolio of rentals, he strongly believes passive investing is the best way to offset the cyclical nature of traditional investment vehicles as well as avoid the headaches of direct property ownership. Through consistent cash flow, long term yield and available tax benefits, the diversification offered with passive investing brings a welcomed balance to an otherwise turbulent investing scheme. What Sean likes most about the syndication space is that the investment opportunities are not “one size fits all” and the community of investors genuinely want to help.

He earned a B.S. in Finance from Iowa State University in 1995 and a MBA from Otterbein University in 2007. Sean has lived in eight states but has called Ohio home for the last 20+.  When not attending his children’s various school/sporting events, Sean can be found running, golfing, shooting or fly-fishing.

Patrick Wills

Chief Information Officer, Advisory Partner

An active real estate investor since 2017, Patrick Wills’ investing journey began like many others – after reading the “purple book” by Robert Kiyosaki. Patrick started with single family rentals, and while they performed well, he quickly realized their inability to scale efficiently while remaining passive. He discovered syndications via podcasts and local meetups and never looked back. He joined Left Field Investors in 2022 as a member and has quickly become an integral part of the team as Vice President of Technology.

An I.T. Systems Engineer by trade, he experienced the limitations of traditional Wall Street investing firsthand in his career and knew there had to be a better way to truly have financial freedom.

Unfortunately, that better way is inaccessible to those who need it most. His mission is to make alternative investments accessible to everyone who seeks to take control of their financial future and to pursue their passions in life.

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