Well-built insurance policies with good carriers are great assets to have. As rates rise, their expected cash values are expected to rise as well. If a policy has been used to collateralize loans, the costs of those loans will likely rise as well. If costs are expected to be more than increases in policy performance, loans may need to be repaid or neutralized temporarily with “wash loans” from the carrier until positive loan spreads return. The Flexmethod is designed specifically with these contingencies in mind. Clients should understand this is a possibility and that even unleveraged, insurance is a great asset to hold for both cash growth and family protection purposes.
It is expected that if higher rates remain, a positive spread will return and even more money will be made than if the same spread took place in a lower rate environment, especially when interest is deductible.