Insurance Blog

Taking a loan on your insurance

A life insurance is more than just a death benefit. It’s a good investment option for those who know the ground rules and can choose smart.

It comes with several hidden benefits, and one of the most important would definitely be that fact that you can take a loan on your life insurance. Making money out of your insurance, can be a great way to generate some tax-free income, although you need to keep in mind that you need to structure the decision carefully.

Keep in mind that you can only leverage your life insurance and not make it an alternate income. Also, the amount that you wish to borrow depends on the different types of insurance that are available and the amount of cash that you have accumulated.

One of the pros of taking money from your insurance is that, the interest rate is low and there isn’t much of an approval process.

As intriguing as it sounds, you need to reconsider your decision carefully before jumping into it, because unlike a conventional loan, if you fail to repay the loan, the money would be deducted from your death benefit that your beneficiaries would get. Although the risk may look minimal, you need to keep in mind that the idea behind taking a life insurance is to cover the lives of your loved ones, financially.

Thus it is always essential that you stay away from easy temptations and, take a loan only when you know you’ll be able to repay it. 

So, how much loan can you take out of your insurance?

Technically it is possible for you to borrow up to the cash value you have accumulated within your permanent or whole life insurance policy, and you can do this by contacting your life insurance agent financial planner. Also keep in mind that unpaid interest can create trouble.

That is, if you fail to cover the full interest due, that unpaid interest will accrue as income and be added to the loan balance.

Unlike a bank loan or credit card, policy loans do not affect your credit and there is no approval process or credit check because, in simple words - you are just borrowing from yourself. Just make sure that you aren’t venturing into policy loans without assessing the risks.

So when an unexpected incident occurs, and you need to repair your house due to a natural calamity or pull in some cash for your small business, or pay for a brilliant college opportunity – go ahead and take benefit of the cash value that you have accumulated in your policy!