How can a policy be used to eliminate debt?
A policy can be used very similarly to a line of credit. The one catch is that the policy has to be reasonably funded first to build up the cash value so that you have enough to borrow from.
If you pay a debt in a typical way just using cash, you may not have the debt anymore, however, you will have what is called a Lost Opportunity Cost. The money you paid the debt off with is gone. The cash you put into a life insurance policy works a little differently. Whether you leave the cash in the policy or take it out to pay off a debt, it earns the same interest! Your cash will always be working for you, even if you have to take it out of the policy.
Shown in the video is an example of a policy with cash being taken out as a loan compared with a policy where no cash is borrowed. The earned dividends are dollar for dollar across both policy examples. Insurance companies are able to do this by using the Death Benefit as collateral. If $200K is loaned out of the policy, the Death Benefit will be reduced by $200K. If you choose not to pay back a policy loan or you die before the loan is paid back, your Death Benefit will be paid out minus the amount owed for the loan.
So, even if you choose to pay the loan back to the policy after paying off high-interest debt, that money was still working for you the entire time you had it loaned out. No lost opportunity cost! Once a loan is fully paid back to the policy, your cash value and death benefit are fully restored as if it was never touched in the first place.