Borrowing from my Whole Life Insurance Policy - What do I need to know?
Dear Cheryl&Mack,
A friend of a friend tried to borrow from their whole life policy - that had an accrued cash value but turned out they couldn’t.
What are the considerations and implications of borrowing against the cash value of a whole life insurance policy, and how does it impact the policy's performance and coverage?
Thank you!
Signed,
Option Fatigure
Dear Option Fatigue
This is a great question because there are so many options and it’s important to understand which one you buy.
The perks?
It's usually a smooth process with minimal paperwork and no need for credit checks.
Your policy's cash value acts as collateral, making it a hassle-free borrowing option.
Lower interest rates on these policy loans, compared to standard bank loans or credit cards
Now, what could you do with this borrowed money?
unexpected expenses,
investing in education,
supplementing retirement,
or seizing a great opportunity
There are important considerations to keep in mind:
Borrowing against your Whole Life Insurance policy affects its cash value and death benefit.
Failing to repay the loan might reduce the death benefit that your beneficiaries would receive when you're no longer around.
One reason your friend might’ve not been able to borrow from their policy would be because it didn’t have the loan option attached to the policy.
Some policies have a cash value that you cannot borrow from.
Instead, the insurance companies allow you to use the cash to pay the premiums but it is very dependent on the policy.
Hence, thoughtful planning and consultation are key before diving into this borrowing option.
I hope this helps
As always, reach out if you have any questions.