Can I Borrow Money from My Life Insurance Policy?
If you have a whole life or permanent life insurance policy, you may be able to borrow against it if it has cash value. The cash value is the money in the account that exceeds the death benefit you chose. This ‘extra’ money gets invested by the insurance company. However, it’s cash for you to use as you see fit. The insurance company does not hold onto it until you die. If you need the cash, you can borrow it. But know that your death benefit policy is held as collateral as a result. If you don’t pay the loan back in full prior to passing away, the death benefit for your beneficiaries gets reduced accordingly.
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It’s Easy to Borrow the Money
One of the largest perks of the whole life policy is that you can borrow the money whenever you want. You don’t have to ‘apply’ for the loan and answer any questions. You can use the money for whatever you want. It doesn’t matter what your credit score is or even your debt ratio. You simply fill out a form requesting the money and you get the money. It’s that easy.
Of course, you should check with your insurance agent before requesting the money. Ask about the insurance company’s policy about borrowing money from the life insurance policy. Most companies allow you to take up to the total cash value of the policy, no questions asked. But, it doesn’t hurt to make sure this is truly the case. Of course, you’ll also want to know what your cash value is on the policy. It takes time for the cash to accrue. If you took the policy out recently, chances are you have very little cash value.
Paying Back the Money From Your Life Insurance Policy
Keep in mind, though, you borrow the money. You don’t just get to take it out. You have to repay it and with interest. Generally, the interest rate is lower than you would get on a credit card as long as you pay the money back in a short amount of time.
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The good news is, though, you can pay it back on your own schedule. Obviously, the faster you pay it back, the less interest you pay. But there is no one telling you how much you have to pay back and when. You pay it back when you can. If you pass away before you pay it back, the money gets automatically deducted from the death benefit. This means your beneficiaries receive less money to cover your expenses. Make sure you keep this in mind when you take the money out. Make sure there is enough in the death benefit so that your loved ones are covered.
Before you borrow money from your life insurance policy, make sure it’s the right choice for you. Consider all of your options including credit cards, personal loans, and even a second mortgage. Compare interest rates and costs, then decide if it’s worth the risk. If it’s a short-term loan and you know you can pay it back, go for it. You probably stand to save a significant amount of money. If you are unsure when you could pay it back, though, be careful as you could end up with a lapsed policy and more fees on your hands if you aren’t careful. Talk to your insurance agent before making any decisions to make the process go as smooth as possible.
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