Then you can either take a policy loan from the actual life company OR most banks can use those policies as collateral and can lend against them.

Should I buy the house in cash and use that as collateral to get money to rehab?

And frankly if sellers sat with a decent RE attorney very few would ever agree to a straight sub to without additional fore closable collateral.

Therefore, its your balance sheet/credit worthiness combined with the real estate (banks collateral) that will be considered in extending financing, not the LLC.

It could be a cross collateralization or it could simply be for reference purposes.

They can hold the lot as collateral and they would get to keep the deposit too if the owner defaults.

The only worth collateral has to a bank is how easily it can be liquidated in the event you default.

The lender is not required to include this contingent liability as part of the borrower’s recurring monthly debt obligations provided the lender obtains a copy of the applicable loan instrument that shows the borrower’s financial asset as collateral for the loan.

Also, if you build a small portfolio, an institutional lender may be willing to later cross-collateralize the properties and offer more favorable financing using all the properties.  

Lenders are concerned with the  real estate collateral and your creditworthiness.