The upside for Advisors
Advisors dealing in Whole Life insurance may miss an opportunity to grow their business if they leave this niche borrowing tool off their product shelf – the ‘Cash Surrender Value’ line of credit (CSV LOC).
As you can read in our previous articles, the use cases for a CSV LOC are widespread. For clients approaching or in retirement, the Equitable Bank CSV FLEX Line of Credit1 can be used to balance CPP, OAS and RRSP income; assist adult children with a mortgage down payment; and cover any retirement shortfall. Meanwhile, if you’re dealing with a younger set, or those looking to maximize the amount they can borrow, the Equitable Bank CSV MAX Line of Credit is the more appropriate tool for creating an IFA lite strategy, or bridging to a premium offset scenario. Fortunately, both approaches only require minimal input and ongoing guidance from an Advisor.
So, what’s the upside? In our experience, there are 5 key advantages:
- Educate clients about their long-term options. During the first conversation about a whole life policy, you can illustrate the “borrowing” scenario with the confidence that Equitable will be there to lend. Need cash flow projections to make it real? Simply reach out to one of our CSV experts, and they will assist you with any required materials.
- Generate new policy sales. Having this tool available on the product shelf broadens your service offering to prospects, and educates existing clients about the benefits of a whole life policy. This can be especially helpful for people who believe the premiums will either monopolize their cash flows, or become unsustainable over the long term.
- Add alternate income streams. Though not a core revenue source for most Advisors, the product offers supplemental cash flows that require very little effort to service. It’s low risk, medium reward – and it would otherwise go untapped. Advisors are paid 0.20% annually2 for as long as the line of credit remains outstanding.
- Fulfill a promise to existing clients. Many current whole life policies were sold with the intention of clients borrowing the cash later in life. Now, 10 to 15 years later, appropriate lending options are few and far between. Equitable is striving to improve the product suite for Advisors in this wealth decumulation phase, so you can meet the expectations laid out for clients at the start of the process.
- Maintain AUM within your book. If clients have cash needs, the liquidity must come from an existing source, such as their deposit accounts or investment portfolio – or from an innovative solution like the CSV Line of Credit. The latter would ensure that assets held within your book are maintained, continuing to grow undisturbed while clients receive the funds they need.
Under the hood
As a unique lending solution, the CSV Line of Credit provides an alternate, tax-efficient source of cash for Canadians with a whole life policy. Here’s how it works: policy holders borrow up to 90% of the cash surrender value (CSV) of their policy, keeping the rest of the policy intact and growing.3
There’s no application or transaction fee, and the only collateral that’s required is the policy itself. And for the CSV FLEX, the interest on the loan continues to capitalize, so that proceeds are ultimately repaid by the death benefit, with the balance left for the beneficiary. Find out which line of credit is best suited to your client.
The CSV FLEX is designed for Canadian residents 50+ years who have:
- A whole life insurance policy with one of Equitable’s approved insurance partners4
- Adequate CSV available in their policy5
On the other hand, the CSV MAX is ideal for any Canadian resident above the age of majority who has:
- Same as above
- The financial qualifications to ensure interest payments can be made
1 Visit www.equitablebank.ca/lines-of-credit/csv to learn more and decide if the Equitable Bank CSV Line of Credit is the right solution for your client..
2 Paid and calculated monthly off the minimum outstanding balance.
3 The Equitable Bank CSV FLEX Line of Credit offers access to tax-free cash while the policy continues to grow, and payments are not required as long as the line of credit remains in good standing. This is a demand credit facility, meaning Equitable Bank can demand payment of all or part of the outstanding balance at any time. The outstanding balance must remain below 95% of the cash surrender value of the policy. This option allows your client to access up to a maximum of 90% of the cash surrender value of their policy (evaluated on a case-by-case basis). Credit limits are subject to deductions based on required premium payments. For the CSV MAX Line of Credit, borrowers are eligible for credit limits totaling 90% of the cash surrender value of the policy, provided that monthly interest payments are made. Equitable Bank is in no way providing investment advice.
4 A full list of partner insurers can be found on the Equitable Bank website.
5 The amount of capital made available depends on the projected growth of the policy and the age of the borrower.