What to consider before you borrow against your life insurance policy.
When it comes to life insurance, not all policies are created equally. Certain types like whole and universal life insurance allow you to build cash value in the policy as you pay your premiums. For many families, this offers a financial opportunity to borrow against a life insurance policy, which could come in handy if you run into trouble down the road or need to make a large purchase. However, it’s important that you weigh the pros and cons carefully.
How a life insurance loan works
A traditional bank loan will usually require a lengthy application process and a full credit check. Life insurance loans mean that you don’t have to jump through any hoops to borrow from your policy. Typically, you can borrow up to the amount of cash value you’ve accumulated. The policy itself will serve as your collateral. Repayment terms are generally flexible but talk to your insurer about what your policy states.
Advantages of borrowing against your policy
If you face a financial disaster, you may be tempted to take out a new loan or sell certain assets. However, a life insurance loan means that you can take money out of your life insurance to bypass financial hardship. Plus, you don’t have to pass a credit check or demonstrate proof of income to qualify. This can work in your favor if you have a poor credit history. Insurers do charge interest on a life insurance loan, however, they are often much better rates than what you’d pay for a bank loan.
Drawbacks of life insurance loans
One of the biggest issues of borrowing from your life insurance is the impact it can have on your beneficiaries. Your loved ones may come up short once they need to cash in on the policy. Unless you leave behind other assets, they may have to bear the financial burden of paying for your funeral expenses or settling any debts or taxes owed by your estate.
Be sure to consider these points before you borrow against your life insurance policy.
To learn more about how best to protect your family’s future, contact the team at Bell Black Insurance. We can help you tend to your life insurance needs so that you get the best value for your money. We serve Idaho Falls, Island Park, Driggs, Victor, Swan Valley, Ashton, and the neighboring communities in Idaho, as well as Jackson and Star Valley in Wyoming.