What is Additional Collateral?

Banks like to safeguard their investments

Additional collateral is a common term when discussing leveraged life insurance. If the loan you will take or have already taken is larger than what the cash value in your policy can support, banks will typically require you to assign additional collateral to them to secure the loan, in the amount that the loan exceeds the cash value that can be leveraged (in many cases less than 100% of it).

What can I assign as additional collateral?

You can use a wide variety of assets as additional collateral. The portion available varies by asset. As an example, for an Immediate Financing Arrangement, Manulife Bank generally accepts (December 2017, subject to change without notice):

  • Letters of Credit: 100%
  • Whole life insurance policies: 100%
  • Universal life insurance policies invested in Guaranteed Interest Accounts: 90%
  • Manulife Bank GIC / Advantage Account: 100%
  • Managed accounts: 75%
  • Residential Real Estate (Priority Position): 65%
  • Mutual funds: 50%
  • Securities: 50%

Collateral assignment requirements and the amount of an asset that's assignable can vary by bank and insurance strategy. For instance, the Corporate Insured Retirement Plan generally allows universal life policies invested in essentially anything to be leveraged, while the example above does not.

For details on leveraging for a specific strategy, contact us.

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