Is It True You Can Take A Loan Out On Your Life Insurance?
Posted August 16, 2009 – 4:18 am in: structured settlements FAQIf I needed a small loan, could I take it out of my life insurance? If so, how does that all work?
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8 Comments
Only if it’s a cash value policy, and you have “cash value” built up.
How it works is, you overpay your premiums. The insurance company keeps most of the overpayment, but earmarks about 10% to be your “cash value” after you’ve paid into it a few years.
You can borrow UP TO your cash value, but you have to pay INTEREST to the insurance company. They keep the interest on your money, forever. It’s their profit.
If you die before paying back the loan (of your money, plus interest to the insurance company), they subtract it out of what they pay your beneficiary.
It’s basically a rotten deal, but then, whole life insurance is a rotten “savings account”.
Permanent life insurance types have a cash value feature built in that you may or may not be able to borrow from. Some companies will allow it, some won’t.
As long as your life insurance policy is whole life, variable life, or variable universal life (WL, UL, VUL respectively) you should contact your agent or company to inquire.
There are negative possible effects to look out for. In a WL policy, your loan will decrease your death benefit, in a UL/VUL, it’s possible to drain enough money out to collapse the policy…
Term life does not have the cash value feature and you cannot borrow from it.
It must be whole life with an increasing cash value. It will basically lower the value when you die unless you pay it back.
It depends on the type of insurance you have, term insurance no there is no loan option or value. On Whole Life or Universal Whole Life yes but it is usually the money that you have already paid to the company and then they charge you interest on the loan, usually 8 percent, if you pass before paying everything back then they subtract whatever you still owe from the face value and give the beneficiary the rest.
Yes and no. It depends on the kind of insurance you have. If you have whole life or some kind of modified whole life, the policy accrues cash value over the years. Some policies actually start paying the premium for you over time.
If you have term insurance, probably not.
Best to just contact your agent and ask them. But if there is accrued value, you can borrow against that value. If you die, they will pay off the loan from the proceeds of the death benefit.
Please don’t take out on your life insurance! You have it for a reason. It’s never too bad that you have to do that. Please don’t take me wrong but you can make through whatever it is your going through without doing that.
probably
I don’t know how it works
I’m already excited about that reverse mortgage thing
19 years to go I guess
It’s usually better to withdraw an amount up to your cost basis first and then consider borrowing money from you policy. This way, you can get money out, but you aren’t accumulating interest on it.
IF you make any significant changes like this, make sure to order an “inforce illustration” when you request the form and study it carefully before you make any final move. If you borrow from the policy and the policy lapses, you will owe ordinary income taxes on the full loan amount in the year the policy lapses. That would suck.