A 67-year-old client of mine had about $381,000 in assets, most of it in two houses. She also had $250,000 of term insurance that would expire in five years. Her equity was sitting inside the houses, and her son, the likely heir, wouldn't necessarily want to live in either one. So we looked at moving part of that equity into a high cash value whole life policy. I recorded the plan so she could rewatch it, and the client roadmap video on funding a policy with a HELOC has the full numbers.

A HELOC is a home equity line of credit, which means a revolving credit line secured by your house. Hers had $100,000 of room at 5%, with about $20,000 already borrowed. That rate was variable, which means it can rise. The first design called for a $381,000 death benefit, a base premium of $2,900 a year, and up to $26,000 a year in paid-up additions. Paid-up additions are extra premium that buys small pieces of fully paid insurance and adds cash value right away. The total was about $29,000 a year.

Her income was about $36,000, and she kept about $750 a month after bills, or $9,000 a year. That left a gap of roughly $20,000 a year. The HELOC would cover it. Each month her whole paycheck would go into the HELOC, and she'd pay her bills from it. Interest on a line of credit is charged on the average daily balance, so a paycheck parked there lowers the balance for days at a time. Her HELOC would climb about $20,000 a year, and by year four it would be at its $100,000 limit.

At that point the policy would show roughly $116,000 paid in and about $110,000 of cash value. She was 67, which limits her to a standard non-tobacco health rating, so break-even came in year six or seven instead of the usual year four or five. Break-even means the cash value finally exceeds the premiums paid. Her policy loan rate was 6% and the HELOC was 5%, so we'd leave the cash value alone as a backup and use the cheaper money first.

Then underwriting weighed in. The insurance company looks at net worth, income, and age, and it offered only $155,000 of death benefit, not $381,000. The new design had a $1,400 base premium and up to $11,300 in paid-up additions, about $12,700 a year in all. Her $9,000 of yearly cash flow now covered most of it, so the HELOC would grow only about $4,000 a year, to roughly $36,000 by year four. By then she'd have about $50,000 paid in and around $47,000 of cash value, close to break-even.

The smaller plan is actually easier to keep going. A lower HELOC balance means less interest and less risk if the rate climbs. Keep in mind that a policy loan lowers the death benefit while it's outstanding. A $100,000 loan against a $381,000 benefit leaves $281,000. The HELOC is also secured by her homes, projections aren't promises, and I'm a licensed insurance broker, not an attorney or CPA, so this isn't advice for your situation.

She went ahead with the $155,000 policy and plans to see whether another company will cover more of the $250,000 she wanted to replace.