Can You Borrow from Your Policy?
With the United States economy continuing to struggle, we’re seeing the affects of the credit crisis take shape in several different aspects. You’ve probably heard about the possibility of a student loan crisis this coming school year, but you may not have heard that their may soon be a lack of traditional loans as well. Without easy access to loans at reasonable rates, many people will soon find themselves searching for new options. An option that could be a possibility for some families is borrowing from their life insurance policy. This only applies to those that have a whole life policy, as opposed to a term life policy. Those with whole life insurance have the option of borrowing against the cash value that has built up in their policy, although it takes 5-10 years of payments before there’s really anything of value to borrow. Depending on your policy, you may able to outright keep the money you take or may have to pay it back like a regular loan. Even if you do have to pay the money back, the advantage of borrowing against your policy is that the interest rate is usually much lower than that of a loan. Should you pass away before the loan is paid back, the insurance company simply deducts the loan debt from the death benefit. Obviously, borrowing from your life insurance policy can be an intriguing option for some people, but is it the right choice for you?
Should I Borrow Against My Policy?
The question of whether you should borrow money from their life insurance policy is one you can really only answer yourself. Think about what exactly you need to borrow the money for and if there are other options that may work similarly or even better. For instance, how much money do you need to borrow and for how long? If you only need a small amount and think you can pay it back within the year, then you could consider opening a new credit card that has no or low interest for the first year. Also, have you built up considerable equity in your home? A home equity loan may be a better option for some people. In the case that you need to borrow a significant amount of money from your policy, remember that you don’t want your life insurance’s cash value and the loan amount to get too close, as you could risk not being able to afford paying for your insurance policy. Whatever you decision may be, borrowing from your life insurance policy is a viable option, but one that should be talked about with your financial advisor before making any decisions.