Lesson · Facts First
Family Banking
Borrow against accumulated cash value or family capital and repay yourself - the loop the banks run, kept in the family.
The facts
- 01The legitimate core: policy loans against permanent life insurance cash value (tax-free under IRC 72(e) if the policy stays in force) and intra-family loans at the IRS Applicable Federal Rate - below-market family loans can create taxable gift income, so AFR matters.
- 02Policy loans accrue interest and reduce the death benefit - it is your collateral, not free money; lapsing a funded policy can trigger tax on the gain.
- 03Intra-family lending needs the same discipline as a bank: written note, rate, schedule, and (for real estate) a recorded mortgage.
- 04This is a structure for disciplined balance sheets - run the numbers with a fee-only advisor before committing premium dollars.
Sources
- IRC Section 72(e) (policy loans)
- IRS Applicable Federal Rates (AFR) monthly tables
Educational content only — not tax, legal, investment, or VA-benefits advice. Figures verified against the cited sources for 2026; confirm your own situation with a qualified professional before acting.
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