Most owners know two ways to get money out of a policy: a withdrawal, or a loan from the carrier. There's a third. Some banks will open a line of credit secured by the cash value of a whole life policy, through a collateral assignment. Mostly regional banks and a few credit unions. You borrow from the bank. The carrier isn't involved beyond acknowledging the assignment. The policy keeps crediting its full dividend and guaranteed growth, because there's no policy loan on it at all.
Why anyone bothers: the rate. Bank lines against cash value are typically priced off prime or a similar index with a small margin. And there have been long stretches where that came in under the carrier's loan rate. On a direct-recognition policy the difference is bigger. The carrier cuts the dividend on the loaned portion, and the bank doesn't touch your dividend at all. The interest is billed monthly like any bank line of credit, which for some people is the point. Somebody sends a statement.
What the bank wants. A whole life policy, usually from a carrier with a top financial strength rating, with enough cash value to bother with. Most lend up to a high percentage of the cash surrender value, and most have a minimum size that rules out small policies. IUL cash value is harder to place, because the account value can move and the bank doesn't want collateral that shrinks. It's a real credit application, with a credit pull and income questions, and recording the assignment with the carrier takes a few weeks the first time.
The downside is that the bank is a bank. The line of credit can be reduced or called, the rate is variable, and if you stop paying, the bank can take the cash value through the assignment. A policy loan can't be called and can't be frozen. So it's a tool for people who can run a bank line of credit without drama, and it doesn't replace the policy loan as the emergency source. Keep the policy loan as the one that's always there.
Where it fits in a Dynamic Banking plan is as the sweep account when there's no HELOC, or as a cheaper one than the HELOC on offer. Paycheck in, bills out, daily interest on the average balance, and the policy underneath it growing at full speed. The mechanics of the assignment itself are in collateral assignment basics on the education side.
Say your policy is past year five and the cash value is big enough that a bank would bother. Call two banks that advertise cash value lending and ask three questions. What's the margin over the index. What's the maximum advance rate against surrender value. And does the line of credit carry an annual fee, or a review that can cut it. Then put those numbers next to your carrier's current loan rate and decide with both in front of you.