In 1933 Detroit's Banks Closed for About Three Weeks. Here's What Policy Loans Did.

I told this story at the start of whole life month on the LIFE Pod, the podcast I host with Carlo Viqueira, in the episode explaining whole life insurance. It comes from the history of a large mutual life insurer, and it shows what cash value can do when other money is out of reach.

In February 1933, during the Great Depression, a mix of state and federal actions closed banks in Michigan for roughly three weeks. Detroit was hit hard. Customers couldn't cash checks, so more than 15,000 policyholders came to the insurer's Detroit agency to borrow against their cash values. The company sent $300,000 in cash to its Michigan agencies to meet the demand.

One of those customers was a coal dealer. It was a brutal February, with temperatures as low as 13 degrees below zero, and local coal supplies were running low. The railroads were holding his coal and wanted payment before they'd let it go. His money was all in banks that had closed. He needed $100,000 in cash and had a $115,000 single premium policy he'd bought two years earlier.

The agency didn't have that much cash on hand, so it called the home office. A series of calls to three Federal Reserve banks and one local branch got $100,000 out of a local bank's vault in about six hours. He was handed an envelope with the cash while guards stood on each side of him. Within a few hours the coal was released, and trucks began delivering it to schools, hospitals, orphanages, and homes where people were sick. A few days later the banks reopened.

The policy loan wasn't instant, because the insurer needed a lot of effort and about six hours of phone calls to find the cash. But the right to borrow was written into his contract. He didn't have to wait on a bank's hours or a lender's approval. What carries over today is that contractual right, even though loans now move electronically. Our post on how long a policy loan takes to land in your checking account covers the modern timeline.

This was a different era, and the details aren't a guarantee of how any carrier treats you today. A policy loan reduces your cash value and your death benefit while it's outstanding. It charges interest. A loan can also trigger a tax bill in some situations, such as on a single premium policy, so ask your CPA before you borrow. I'm a licensed insurance broker, not an attorney or tax advisor.

If you own a cash value policy, check this week whether your carrier has your bank account on file for loan payouts and which forms it requires.