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 advances 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 taking out money against their life insurance plan. This only applies to those that have a whole life policy, as opposed to a term life counterpart. Those with whole life insurance have the option of borrowing against the cash value that has built up in their plan, although it takes 5-10 years of payments before there’s really anything of value to take out. Depending on your plan, 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 funds back, the advantage of taking out an advance against your plan is that the interest rate is usually much lower than that of an advance. Should you pass away before the advance 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 funds from their plan is one you can really only answer yourself. Think about what exactly you need to take out the funds for and if there are other options that may work similarly or even better. For instance, how much money do you need to tide you over 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 take out a significant amount of funds from your contract, remember that you don’t want your cash value and the advance amount to get too close, as you could risk not being able to afford paying for your policy. Whatever you decision may be, taking out money against your plan is a viable option, but one that should be talked about with your financial advisor before making any decisions.
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