How To Borrow Against Your Life Insurance

A common strategy that some life insurance policies offer is the ability to borrow against a portion of the policy’s cash value, and there are many reasons why someone might choose this option. For example, the loans typically have lower interest rates than a standard bank loan and the insurance company does not require a specific credit score to approve the loan. The amount borrowed is typically limited to 80% or 90% of the total cash value of the policy, which helps ensure that the death benefit paid to your beneficiaries will not be depleted when you die. Get information on borrowing against your life insurance, go to https://www.ascendantfinancial.ca/service/financial/borrowing-money-from-life-insurance/.

However, it is important to understand the implications of borrowing against your life insurance. If you are not able to repay the loan, any remaining balance will be taken from your death benefit, reducing or possibly eliminating the amount your beneficiaries will receive when you die. In addition, any unpaid debt will also be taxed.

Unlike the withdrawal of cash from a whole life insurance policy, which reduces your cash account by the amount withdrawn, borrowing against the cash value of a permanent life insurance policy does not deplete your cash account and does not affect the future growth of the policy. In fact, if you pay back the loan within a reasonable time frame, the cash you borrow will continue to earn interest and potential dividends. This is a central principle of the Infinite Banking concept and a major reason why many people believe that borrowing against their life insurance is a smarter and safer alternative to taking out a personal loan or using a credit card.

The process for requesting a policy loan typically varies by insurer, and you will need to review your provider’s lending guidelines and policy provisions before applying. Generally, though, the first step will be to verify that your policy includes a borrowing provision. Once you have done this, the remainder of the process is fairly simple and typically involves completing an application and providing the requisite documents to your insurance company.

In some cases, your insurance company may need to use part of your cash account to cover the cost of interest if you are unable to repay the loan. However, the insurance company will only do this if the outstanding loan balance plus interest amounts to a substantial amount that could negatively impact your beneficiaries’ payout when you die.

For these reasons, many people opt to borrow against their life insurance for large purchases or to provide for unexpected expenses. The good news is that the benefits can be quite significant and you are essentially financing your purchase using money that is a guaranteed part of your estate.

If you are interested in learning more about How to borrow against your life insurance, please contact us. In fact, most permanent life insurance policies begin to build cash value in about two to five years and some can even be used as collateral for a loan.