Should I Borrowing from Whole Life Insurance
One of the biggest benefits of purchasing whole life insurance is that you have the ability to borrow against your policy. This means that a whole life insurance policy doesn’t just benefit those who are the beneficiaries of the policy and who will receive money after the insured has died, but that the insured can also enjoy some of the benefits of their policy while they’re still alive.
So how does borrowing from whole life insurance work? For starters, every insurance company will have a different set of regulations or requirements when it comes to taking out loans against a policy, so it’s best to check with your insurance provider for specifics. But, there are some general guidelines that will apply to most, if not all, life insurance policies.
The reason policy holders are able to borrow from the whole life policy is that some of the money they pay in premiums is invested and put toward building a cash value for the policy. After a certain period of time, your insurance provider will allow you to borrow from this cash value with the payment of some amount of interest.
The good thing about borrowing from whole life insurance, and one of the reasons it’s a good place for a person to borrow from, is that the interest rates insurance companies typically charge for borrowing are low. The only sure way to know just how much money you can borrow from your whole life policy, however, is to contact your insurance company. While one company will allow an insurance holder to borrow the entirety of their policy’s cash value, another will allow a much lower percentage.
Another reason people choose to borrow from their life insurance policies is because the insurance company doesn’t check their credit history or run through some of the other criteria that a more traditional lender, such as a bank, would. Instead, insurance companies typically allow you to borrow if your policy has the cash value.
And, with regards to repayment, while you will likely have some amount of flexibility when it comes to paying back the value of the money borrowed plus interest, the amount of your policy’s death benefit can decrease if the loan is not repaid in full by the time the insured dies.