2. Understand the policy and the financing separately
Lesson 2 of 5 · A Capital Strategy for Successful Business Owners
2. Understand the policy and the financing separately
A participating whole life policy can be considered as one long-term source of personal capital and protection. Cash value depends on premiums, policy costs, contractual guarantees, and potentially dividends. Dividends are not guaranteed, and early surrender values may be below premiums paid.
If an insurer lends against a policy, the loan has its own interest and repayment consequences. The business use of the proceeds is a second transaction. A policy owned personally and money lent to a company are not automatically the same legal or tax arrangement.
Keep records of ownership, beneficiary choices, business borrowing, and repayments. If a business owns insurance or insures an employee, additional consent, notice, reporting, and tax issues may apply. Review the arrangement with the appropriate legal and tax professionals.
Self-check: Is loan interest automatically deductible because the proceeds were used in a business? No. The relevant tax rules and the actual arrangement must be reviewed.