Before borrowing from your life insurance policy, there are a few details to be aware of. If you have borrowed 100% of the benefit amount on your death and die before paying back the debt, there’s no good way to get that money back from a partial policy.
If you don’t pay off all the loans in full when they come due, the company will automatically terminate the policy and return everything to you at maturity. This could include part or even all of any remaining.
What Happens During a Life Insurance Loan?
Since you are effectively borrowing from yourself, policy loans are different from bank loans and credit cards because they don’t harm your credit and don’t require an approval process or a credit check.
Although no monthly payment is necessary and interest rates on policy loans are frequently substantially lower than those on bank loans or credit cards, it is still expected that the loan would be returned, along with interest.
Returning the Loan
The loan must be repaid on time, even with low-interest rates and a flexible payback schedule. Whether the bill is paid on time each month, interest is added to the debt and accumulates, placing your loan at risk of going over the policy’s cash value.
Suppose the loan is not repaid before the insured individual passes away. In that case, the loan balance plus any interest due is deducted from the death benefit distribution intended for the beneficiaries.
The bottom line:
With its death benefit, permanent life insurance that builds cash value may offer some living benefits. One of them is the capability of borrowing against the policy’s cash value. As mentioned above, this is a way to finance debt.
Adding cash value to your permanent life insurance policy can buy more coverage and take out a loan against it. This blog discusses how you can borrow money from your life insurance. Do you want a life insurance policy? Get in touch with our experts today.