Life insurance policies, particularly whole life or permanent policies, may have a cash value component that can be borrowed against. This is known as a policy loan. Policyholders can borrow against the cash value of their policy, typically at a low interest rate, and use the funds for any purpose they choose. Some of the common reasons people borrow against their life insurance policy are to pay for unexpected expenses, to invest in a business, to pay for education or to pay for a down payment on a house.
To borrow against a life insurance policy, policyholders typically need to contact the insurance company and request a policy loan. The company will then provide the policyholder with information about the loan process, including any fees or charges that may apply. Policyholders will typically be required to submit an application and provide proof of income and/or assets.
It’s important to note that taking out a policy loan will reduce the death benefit of the policy by the amount of the loan, plus any interest and fees. Also, if the policyholder is unable to pay back the loan, the policy may be cancelled and the death benefit will be reduced.
Before taking out a loan against your life insurance policy, it’s important to consider the long-term impact of the loan on the policy and on your financial situation. It’s always best to consult with a financial advisor to determine if it’s the best option for your personal circumstances.
