Is It A Good Idea To Borrow Money On A Life Insurance Policy?
Posted May 19, 2009 – 10:21 am in: structured settlements FAQI need $1000.00 for home repairs and to pay some bills. I am thinking about borrowing on a life insurance policy. The interest is 8%. How much will I be paying back if I repay it within 12 months. Is this a good idea?
Tags: Borrow, Good, Idea, Insurance, Life, Money, Policy
5 Comments
Well, the whole CONCEPT is bad. You can only borrow from your overpayment, also called CASH VALUE. So it’s your own money you’re borrowing. If you die before paying it back, it’s subtracted from the face value of the policy (plus interest!), and, while you’ve got the loan outstanding, the interest gets paid TO THE INSURANCE COMPANY.
So you borrow your own money, and pay interest to them. Sigh.
I just don’t think whole life in GENERAL is a good idea. Likely, if you stop PAYING the premium, you’ll have your $1,000. No interest.
It is not a good idea, unless you need it urgently.
You will be paying 8% interest and the company may make you wait for up to six months BEFORE you receive your money. You may want to think about, I do not like saying it, a HELOC. You are talking about pennies. Are you sure you have the thousand in there?
Please give serious consideration to getting rid of your cash value insurance, unless your agen told you about the silly rules of cash value insurance: 1) No money in cash account for two years, maybe more. 2) You will gain interest at 1-4%. 3) You can borrow, but as u found out, at 6-8% interest.
4) They will make you wait for up to six months before thay give you YOUR money. 5) When you pass, your survivors will receive face amount of the policy OR cash value.
It is not generally a good idea to borrow against anything that is critically important to you, but the amount you are proposing to borrow is not high. The question is whether you already have lots of other debts (credit card), and how important the house repairs are for you (is there a safety issue involved?). How certain are you that you will be able to pay it off quickly? Don’t let debt build, but if this is a one time thing and you have no other high interest debt, then it’s probably fine. If you have high interest debts, pay them off before you do anything. You’ll pay in the neighborhood of $100 in paying it back, depending on how the payments are distributed. Also, there might be a processing fee.
It’s usually not a good idea to borrow from your life policy. You certainly shouldn’t use it as an emergency fund. You can withdrawal your cost basis first before you even start taking loans on your gain. IF you make any big changes, you can have the customer service people run an “inforce illustration” to show you what this looks like. Chances are you will be surprised.
It’s a good idea to look at an inforce illustration every year if you own this type of policy anyway – even if you don’t plan on any changes.