When you’re facing a terrible financial crisis or some kind of emergency, often the cash you need to handle the situation just isn’t readily available to you. However, if you happen to be the owner of whole life or permanent life insurance policy, you may be able to borrow against that policy and get the cash you need. Of course, you really should only do this if it is really a very serious need, and it will also depend on how long the policy has been in effect.
Can I Borrow From My Life Insurance?
You sure can, as long as your policy is not term life. It works differently, so you can not borrow against it. A whole life policy builds up a cash value. Technically, it is a type of investment. You would borrow against the benefit amount of the entire policy, as opposed to only the amount you have paid in premiums. The sum you borrow, for whatever reason, will simply reduce the amount of benefits payable in the event of your death.
Now That I Have Borrowed All of This Money, What’s it Going to Cost Me?
Well, as the policy owner, it’s your money. It is not like a bank loan. You can choose to pay the money back if you want to ensure that the original benefit sum is available later on, however, if you can live with a little less being paid to your family in the end, then you don’t have to pay it back. It won’t affect your credit score and no one will come around, trying to collect a debt.
Are There Any Limitations?
Not really. However, there are a few things to be aware of. You can borrow up to the full cash value of your policy. It simply reduces what will later be paid out. If you want that policy to be there in the end, you will want to repay it. Some policies might be better for borrowing than others are, so check with your insurance company. This is due to interest rates ion investments made by the insurance company and fees and such. Get the terms and conditions up front. Still, you won’t have to repay if you choose not to. There are not ground rules for what the money has to be used for either. That is completely up to you, and no one can say an differently.
A life insurance policy that allows you to borrow on the cash value is a great asset to have. However, if you want to protect the interest of those you will leave behind someday, be cautious and don’t borrow too much or at least return some of the funds so the policy will be there to fulfill its ultimate purpose one day.
