Linked Loans: Breaking Free From High Loan Costs

Jan 17, 2018

When clients are considering loans for indexed universal life insurance products, the modern consensus is to choose a product that has a relatively low cap on their variable or participating loans. This of course limits the number of carriers to choose from and still doesn’t address a potential problem IUL clients face. If the underlying index has a down year resulting in low or even 0% credit, an outstanding loan can become very expensive despite these caps. In fact, the average cap is between 5% - 6% meaning that a zero year could create negative arbitrage of 500 to 600 bps. Luckily, there is another strategy you can introduce to them: linked loans.

Linked Loan Options give clients downside protection while also providing upside potential. Loaned funds are transferred to a 1-year Point-to-Point strategy with the upside potential to earn as much as 12%! The amount of interest charged on borrowed funds will never exceed a NET loan cost of 2%. Costs matter to clients, so why not give them the protection and flexibility they want? Sure, this may also slightly limit the upside as compared to the competition; but, overall, our take is that the downside security is worth a slightly lower upside.

To gain access to our pre-recorded webinar that further breaks down this strategy, reach out to your agent relationship manager at 480.296.0169

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