Permanent Life Insurance and Policy Loans
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UPDATED: Aug 13, 2020
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One of the great benefits of permanent life insurance is the ability to take a loan on your life insurance policy. Permanent life insurance accrues cash value which allows the owner of the policy to borrow against the policy in times of need. The amount you borrow and your terms of repayment differ depending on the insurance company and how long your policy has been enforced. Know what your life insurance policy says about policy loans and be prepared to pay back what you borrow!
Understanding Permanent life Insurance
Permanent life insurance policies offer protection for life and, barring your policy being canceled, will provide your beneficiaries with financial support. Permanent life insurance usually comes with a fixed premium, meaning, the premium stays the same throughout the life of the policy. Depending on which type of permanent insurance you get, your premium payments will go towards a savings or investment account and help you grow wealth and build a financial portfolio. There are many reasons to purchase permanent life insurance, but one of the best features is permanent life insurance accrues cash value and can be borrowed against.
Loans from your Life insurance Policy
In order to make a loan against your life insurance policy, you should first check the Policy Loan Provision section of your policy. This section outlines how much your can take out and your repayment options. The policyholder can use the cash value while continuing the insurance protection of the policy, meaning the policy loan will not erase the death benefit your beneficiary receives, unless you fail to repay the loan.
The interest rate on your loan is also specified in this section of the insurance policy. How much interest you will pay depends on the company and varies widely. Your loan repayment amount would include this interest. However, if you fail to make your loan repayment, the interest will be subtracted from the remaining cash value as long as enough cash value remains in the policy. If there are not sufficient funds to repay the loan, the policy could lapse.
Some permanent life insurance policies do not require repayment. Instead, the interest that is charged on the loan would be taken from the cash value, which would reduce the amount of the life insurance payout. This is also the case if you should die before full repayment of the loan. If the cash value can no longer cover your loan repayments, you will be notified that you need to make a payment to reduce the amount you owe to a value that the policy can support.
TIP: Be careful! If you fail to make your loan repayment, the interest will be subtracted from the remaining cash value as long as enough cash value remains in the policy. If there are not sufficient funds to repay the loan, the policy could lapse. This could leave you without insurance at a time when getting another policy would be too expensive or health issues would make you uninsurable!
How Much Can You Withdrawal on Life Insurance and When Do I Repay?
How much you are allowed to withdrawal against your life insurance strictly would depend on the cash value accumulation in the policy at the time of the loan. In some cases, insurance companies allow tax free withdrawals with no penalties or interest. Again, check your Policy Loan Provision section for stipulation on any type of withdrawals. If you have dividend accumulations, you may be advised that you can use dividends to pay down the interest and loan.
TIP: Make sure you know your repayment terms or withdrawal terms before taking out a loan against your life insurance cash value amount. If you feel that your repayment terms have been unfairly represented, changed, or are too much for you to manage then you can consult a life insurance attorney and see if there is a legal solution. Attorneys offer free consultations, and work on a contingency fee so you have nothing to lose by asking for legal advice.
How to Get a Policy Loan
Getting a Loan from your life insurance policy can be as easy as picking up the phone. Some companies let the agent write you a check on the spot. Others will mail you the check. Usually there is no paper work to fill out and never a credit check. You do not have to apply, the loan or withdrawal is yours as long as you have enough cash value in your policy. The death benefit of the policy will remain in effect as long as you continue to pay your premiums.
Taking out a loan against your life insurance policy or a withdrawal can be helpful in a time of need. Understand your policy’s loan provision before you take out a loan. If you would like more information concerning permanent life insurance and if this option is right for you, ask an experienced life insurance professional for assistance.
If you would like to get a quote on a permanent life insurance plan that will accrue cash value, click here to visit the Free Advice quote center today.
Read more articles about finding the right life insurance policy by clicking here.