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Permanent life insurance can act as a vehicle to make borrowing money simple, quick and easy. Policyholders can use the cash surrender value (CSV) to secure a convenient line of credit for any number of purposes. How do you choose the right solution for your client using CSV’s wide range of lending solutions?
Before focusing on the product, think about the customer.
Sometimes customers have a specific need in mind, such as the ability to invest or make a significant purchase. In addition to asking the customer what’s important to them in terms of interest rate or re-borrowing ability, broaden your scope. Include questions that will allow for a more holistic assessment. The more you know about a client’s finances and goals, the better you can make an appropriate recommendation.
There are many ways to incorporate a loan into a client’s broader financial plan.
Even if there is no immediate need, you can be proactive and make the CSV lending conversation part of your annual reviews.
Life milestones and other important events – such as the birth of a child, purchasing or renovating a home, business changes and retirement – ​​can also trigger loan discussions.
For example, consider a client who says he wants to retire with a certain income. As part of their financial plan, make sure you explore all the lending options available to them. Maximize the positive impact that a well-thought-out lending strategy can have on a client’s financial situation.
And if you hear the words “I can’t afford it” or “I need to make a withdrawal,” that’s another tip to consider CSV lending. Customers are less emotionally attached to an insurance contract than, for example, to the idea of ​​refinancing a house or selling property. This may also not be the right time to withdraw any investments they hold with you. CSV loans may be a more cost-effective solution.
Review the options
Here are some situations that may prompt you to talk about a CSV loan. When it comes to which products work best, consider how your customers’ situations fit together various options.
Access Lines of Credit (ALOCs) can be a simple way to obtain credit by tapping into the cash value held in a permanent life insurance contract (or Manulife mutual funds, segregated funds contracts, or GICs).
An ALOC can help you secure financing solutions starting at $25,000 (CAD) with no set maximum. This allows customers to consider our lines of credit for everything from home repairs, medical emergencies and short-term job loss, to debt consolidation and financing business goals. Customers can also take advantage of their ongoing contracts with Canada’s 10 largest life insurers.
If the ALOC is used for investment purposes, the client may also be able to have the interest written off*.
Another useful strategy is the Insured Retirement Program (IRP), which can help retirees supplement their retirement income. Instead of withdrawing the cash value from their life insurance to do this, they can use the accumulated CSV to secure a line of credit.
Then there is the Immediate Financing Arrangement (IFA). In this case, clients can afford to pay significant premiums for substantial death benefits, but want to strategically manage their cash flow and tax planning*.
Once the agreement comes into force, they can borrow against the CSV included in the agreement to minimize (or even neutralize) the impact of premiums on cash flow. Customers can use this cash for any purpose and pay interest only on the premium each month. The IFA is separate from the insurance contract itself.
Who uses these products?
Helps you understand typical customer profiles. For each product they include:
- ALOC – Young and middle-aged professionals with generally good financial plans who want to start an emergency fund.
- ALOC Plus – recognized professionals or small business owners.
- IRP – People who are retired or near retirement (minimum age 50) who wish to leave an inheritance to their beneficiaries.
- IFA – Successful business owners, medical/dental professionals and high net worth and affluent clients.
All these facilities are characterized by relatively low interest rates and allow customers to take advantage of a typically passive asset – CSV in the insurance contract.
When is the best time to implement CSV lending strategies? When your customer doesn’t need them yet. By educating clients on these lending strategies and providing an advance credit facility, you can help them remain flexible when the time comes to access capital.
Learn more about the benefits of Manulife Bank’s insurance lending solutions.
* Clients should consult their specific situation with their tax advisors.
