A Deeper Understanding of Deposit and Loan Availability

As more of us are flexing our Privatized Banking muscles, some questions come up that I wanted to make sure you knew about. This discussion applies to Lafayette Life insurance contracts.

How long does Lafayette take to process my deposit?  

This includes base premiums, PUA and loan repayments.  After receipt of a check, wire transfer, or bill pay, they can take up to 10 business days to log the funds into your policy and have the results show up in your online portal.  Sometimes they are faster.

How much of my PUA is available for loans?

After a PUA has been logged by the company, and the required 10 business days have passed, you will have loanable access to 94% of it immediately. So if you deposited $1000, your available loanable amount would be $940.  To clarify this, your Cash Value is what grows.  Your loanable cash value will be reduced by any existing loans and how recently you made the PUA deposit.  It is probably easier just to say “Cash Value” rather than “loanable Cash Value”  but I want to make this very clear for now.

IMPORTANT: Sometimes your loanable cash value amount goes down, but you didn’t take a loan.

This may not be unique to Lafayette life, but this is a “feature” we just learned about.  Within 30 days of your next scheduled premium— annual, semiannual, etc.—the company will temporarily reduce your loanable balance by the lesser of the base policy premium or the loanable amount you have.  I’ll explain “why?” in a moment.  For example, if your base policy premium is $2000 (billed annually) and you have $3000 of loanable cash value, and the date is within 30 days of your next premium due, you will see $1000 of loanable cash value in your account.  After you pay the premium, all your loanable Cash Value comes back along with the additional PUA you have just put in.   On the other hand, if your premium was $2000 and you only had $1000 in cash value your balance would show as $0 for 30 days until you pay your premium. 

This only applies to your base premium.  If you have a $10,000 annual payment, the base portion is less than half of that.  That is the amount that would be “frozen” for the 30-day period.

We haven’t seen this happen before probably because of the combination of newer policies and more of us taking out more loans more frequently.  It is important to be aware of this if you are planning using a loan near your next premium payment date. If the amount you need is going to be greater than your total loanable cash value minus your next base premium then you need to get the loan before the 30 day period.   The money hasn’t gone anywhere, it will be back.

Why does the company do this?  Their reason is not mean-spirited. Their fiduciary responsibility to us is to do their best to not allow our policy to terminate. For those people who aren’t paying close attention to their accounts (I don’t consider any of us in that class), there could have been a case where someone failed or forgot to pay their minimum policy amount. After the grace period and reinstatement period has ended (45 days), the company will automatically create a loan to pay the base premium using the reserved PUA. If that amount covers the premium, then everything goes back to normal until the next billing. If some lesser amount than the full premium due has been applied, then this will extend the grace period.  The company (and me) will have been trying to get in touch with you during this time to resolve the problem.  Yes, this is not a condition that any of us want to get into, but it is an attempt by our staff at the insurance company to maintain our financial stake in our very valuable policy.

Bottom line: Remember the 30-day window and make sure your plans for policy loans are not impacted, and make your premium payments as close to on time as possible to minimize the hold.

As always, please reach out to me with any questions.  Your referrals are always appreciated and treated with the utmost care.