|Borrow From Your Life Insurance Policy|
Occasionally, unexpected events occur, however, leading to a sudden need for cash. In these instances, your whole life insurance policy may act as a source of money.
While you must pay interest on loans taken from your life insurance policy as long as they remain unpaid, rates are often lower than those associated with many other loans.
Read on for information on borrowing from your life insurance policy.
1. Examine your policy contract to determine whether or not your policy has a cash value. If you are not sure, ask your agent.
2. Find out what the cash value of your policy is. You may borrow up to that amount. If you have had the policy for only a few years, there is probably very little cash value to the policy.
3. Contact your agent to find out the amount of the interest rate you will be charged. Find out if there are any fees associated with taking out a loan.
Ask your agent what impact your loan will have on the death benefit of your policy.
4. Keep in mind that unpaid interest will be added to the amount of your loan and that it is subject to compounding, leaving you to pay interest on interest.
It is a good idea to pay the annual interest on your loan out of your pocket to prevent your loan from increasing.
5. Ask your agent lots of questions. Make sure that you fully understand the tax implications and risks before taking out a policy loan.
6. Request the loan if you are certain that a loan from your life insurance policy is right for you. Your agent will guide you through the process.
- Note that if you die before repaying the loan, the loan and unpaid interest will be taken from the death benefit, leaving your beneficiaries with less money.
Written By: Shannon R