Step-by-Step Breakdown on how to use your High Cash Value Whole Life Insurance policy to mitigate taxes and grow your business.

martyblackmon
May 2
2 min read

Using a whole life insurance policy to fund your S corporation at a profit can be a smart strategy if done properly. Here’s a breakdown of how to structure this scenario where you borrow from a whole life policy at 5.6% simple interest, then loan the funds to your S corporation at 11%, and manage repayments:

🔁 Step-by-Step Breakdown

1. Borrow From Your Whole Life Policy

You have cash value in your whole life insurance policy.
You borrow $100,000 at 5.6% simple interest annually.
The loan is from the insurer, collateralized by your policy’s cash value.

2. Create a Loan Agreement With Your S Corporation

Draft a promissory note or loan agreement between you (personally) and your S corp.
Set the loan terms: principal, 11% annual interest, repayment schedule (monthly, quarterly, annually).
This interest rate must be at or above the IRS's Applicable Federal Rate (AFR) to avoid tax issues.

3. Transfer the Funds

Transfer the $100,000 to your S corporation’s business account.
The S corp uses the funds for operations, expansion, equipment, etc.

4. Receive Loan Payments From the S Corp

Your S corp pays you interest and possibly principal on the $100,000 at 11% annually.
Example: If it’s interest-only for the first year, the S corp pays $11,000 to you.

5. Pay the Whole Life Loan

You use the $11,000 to pay your whole life loan interest of $5,600.
You keep the $5,400 spread as profit, tax considerations aside.

💰 Example With Numbers

Item	Amount
Loan from Whole Life	$100,000
Interest Rate from Whole Life	5.6%
Interest Paid to Insurer	$5,600
Loaned to S Corp at	11%
Interest Paid to You by S Corp	$11,000
Net Profit (Interest Spread)	$5,400

📌 Tax Considerations

Interest from the S corp is taxable income to you.
Interest paid to the insurance company is not deductible.
The S corp may be able to deduct interest paid, depending on how the funds are used.

📄 Documents Needed

Loan agreement with insurance company (often done automatically).
Loan agreement between you and the S corporation.
Corporate resolution approving the borrowing.
Bookkeeping records for both the S corp and your personal finances.