A commodities brokerage uses policy cash value as loan collateral

The situation

He had accepted that the $3 million was dead money. It had to stay liquid for the next inventory buy, so it sat in the corporate account earning taxable interest, and every bank conversation ended the same way, that a commodity brokerage with 90-day receivables was high risk and could have a small loan at a high rate. What the advisor noticed was that the bank's problem was never the money, it was the business, and if the same dollars were sitting somewhere a lender treats as cash, the risk rating stopped mattering. He also had no life insurance at all, with a wife and two toddlers living on his income.

What the advisor describes

• $3 million moved in over two years, not one lump sum, so operations never ran short of cash.
• Cash value grows at the participating dividend rate, about 5 to 6% a year with no annual tax.
• The same bank approved the line of credit, treating the policy's cash value as cash collateral.
• Cash value is not passive income, so his small business deduction stopped getting ground down.

Where it left them

This year he can do something he could not do last year, which is buy $2 million of inventory on a line of credit at a rate the bank would never have given his operating company, while the same $3 million keeps growing untaxed behind it. The retained earnings are no longer feeding a passive income problem, and his wife and children are covered if he is not there.

Laurent Munier

Safe Pacific Financial

British Columbia · Preserve Wealth Group network