Common use of Direct or indirect Clause in Contracts

Direct or indirect. A plan referred to in paragraph (a) of this section may contemplate direct or indirect bor- rowing of increases in cash value of the contract directly or indirectly to pay premiums and many contemplate bor- rowing either from an insurance car- rier, from a bank, or from any other person. Thus, for example, if a tax- payer borrows $100,000 from a bank and uses the funds to purchase securities, later borrows $100,000 from a second bank and uses the funds to repay the first bank, later sells the securities and uses the funds as a part of a plan re- ferred to in paragraph (a) of this sec- tion to pay premiums on a contract of cash value life insurance, the deduction for interest paid in continuing the loan from the second bank shall not be al- lowed (assuming that none of the ex- ceptions contained in paragraph (d) of this section are applicable). Moreover, a plan referred to in paragraph (a) of this section need not involve a pledge of the contract, but may contemplate unsecured borrowing or the use of other property.