IBLOC 101: Insurance-Backed Lines of Credit

Americans are now seeing more volatility in the market.

After years of relative stability, there is now a fear of a possible recession.

And as borrowing gets costlier, consumers are left wondering what their best options are.

For that reason and more, financial professionals and insurance agents should consider recommending that clients explore an insurance-backed line of credit (IBLOC) on their whole life insurance policies.

While other loan options might be risky during this uncertain time, an IBLOC is a great option to get stable, fast liquidity with less volatility.

But what do financial professionals and insurance agents need to know in order to best market this option to their clients? This article covers the essentials that financial professionals/agents should know about IBLOC and how it can benefit both themselves and their clients.

What is an IBLOC?

An insurance-backed line of credit can give clients quick access to up to 95% of the cash value of their eligible whole life insurance policy.

Note that access to the line of credit is contingent on life insurance policy remaining in good standing.

At the bank I work for, the insurance policy owner must be the borrower, and the insurance policy must be issued by one of the following approved insurance providers to be eligible as IBLOC collateral: Guardian, MassMutual, Northwestern Mutual, New York Life, John Hancock, Penn Mutual or Ameritas.

This is subject to credit approval and underwriting, and is assuming that the client's life insurance policy is in good standing.

One of the biggest differentiators of an IBLOC versus other lines of credit is its stability and how resilient it can be from outside forces like dips in the stock market.

Because an IBLOC is not tied to securities, it is more protected from market fluctuations.

An IBLOC cannot be used for the purchase of securities or to pay off a margin loan that was used to purchase securities.

What purposes is it most often used for?

There are many uses and benefits of accessing liquidity with an IBLOC.

It can be an effective investment strategy for consumers to make their money work for them and maximize returns when comparing interest rates.

However, because of its low-risk properties, clients tend to use an IBLOC for fast liquidity needs like real estate, taxes, student loans, and more.

Anecdotally, we often see most clients using this type of loan for real estate purposes in particular.

This is because an IBLOC has the most potential in this use case due to the significant savings it can offer since there are no unexpected costs like ancillary fees or pre-payment penalties.

What are the benefits of an IBLOC for financial professionals and agents?

While the benefits of an IBLOC might be obvious for your clients because of the quick access to liquidity, there are also lesser known benefits for the financial professionals and agents offering this option.

By making clients aware of IBLOC offerings, financial professionals can continue to build clients' confidence in their strategic advice by showing them a straightforward and low-cost way to access money in their whole life insurance policies.

By adding anything IBLOC to their lending options, financial professionals can further diversify their offerings and, in some ways, become a more sophisticated advisor without additional licensing.

Managing long-term financial goals can be a difficult task for both individuals and the financial professionals managing their portfolios, especially when access to liquidity is needed fast during times of uncertainty in the market.

With this in mind, financial professionals and agents should consider recommending that clients explore IBLOC as an easy, flexible option when it comes to larger purchases or other financial obligations.

Abdullah Rajput is director and IBLOC lead at The Bancorp Bank.