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How Much Can You Borrow from Your Life Insurance Policy?
Borrowing from your life insurance policy may be an option for some people, especially for those who have a whole life insurance policy. However, there are limited benefits to borrowing from your policy with a life loan, and you should consider them before making this decision. Learn more about when it is possible to borrow from your life insurance and how much of a loan you can anticipate obtaining from it.
When Is It Possible to Borrow from Life Insurance?
It may be possible to borrow from life insurance if you have a whole life or permanent life insurance policy. This type of policy may have a component that allows you to build up cash value in the plan over time. In these policies, a portion of your payment will go to a cash reserve. The insurer uses those reserves to invest in underlying securities, including stocks and bonds. When those reserves perform well on the market, they help to build up value to your account. Other types of whole life insurance policies build value based on a fixed or variable rate. In all cases, if your policy has a cash value, you may be able to borrow from it.
However, if you have a term life insurance policy – which is the more common option and tends to be less expensive – you are unlikely to have a plan that has any cash value. This means you cannot borrow from these policies for most needs.
Borrowing Against Life Insurance Benefits
There are benefits to borrowing against life insurance. First, this is a loan, which means you do have to pay it back. There is also interest on the life insurance policy. However, there is no credit check, and there is no credit reporting with these loans. In addition, the funds can often be obtained for far less in terms of interest costs than a traditional credit card loan or personal loan. For this reason, it can save you a good amount of money in the long term if you need to borrow.
How Much Can You Get in Life Insurance Loans?
The amount you can obtain with a life insurance loan depends on your cash value. In some situations, the terms of the policy will allow you to borrow as much as 90 percent of the cash value of the loan. This is typically the very maximum amount and is not always available to all borrowers. However, you can find out how much you can borrow from life insurance policies by calling your agent. He or she can determine this information for you within a few minutes. The loan is also typically processed rather quickly, which means there is less of a delay to you in getting the funds you need than other types of loans.
Should You Get a Loan Against a Life Insurance Policy?
It is important to consider the consequences of obtaining a life insurance loan. While it is less expensive than other options, it is also cutting into the time that the cash value of your policy can grow. The longer this money remains in your account and untouched, the more value it will build over time. That is because the insurance company can continue to invest in and build it up. Over time, you may be able to borrow more from your life insurance or even use the funds from your life insurance account to pay for your retirement needs later on in life. Borrowing from your life insurance policy should be done only when you simply need to do so.
A Loan Against Life Insurance Is Better Than Cashing Out Your Policy
Keep in mind that it is nearly always better to take a loan against life insurance cash value than it is to close or take a cash settlement for your account. These settlements for life insurance policies often pay 20 to 50 percent of the face value of your policy. That is generally a fraction of the total value to you. Instead of doing this, it is best to ensure that you borrow against your policy to get the funds you need when it is necessary.
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