What is Switch-Dollar?

Here is a short explanation to help you in understanding what a switch-dollar plan is. It is a hybrid plan that starts as non-equity collateral assignment split-dollar and then switches to a loan at some point. The switch may occur at the point where the cash value of the policy exactly equals the premiums paid, or when the REB costs start to get expensive in relation to the loan interest costs. By proceeding in this switch-dollar manner, the insured can take advantage of low REB rates for as long as possible, assuming they are lower than loan interest costs.

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Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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