Many of us borrow money to buy essential things that we cannot afford upfront.
There are several places you can borrow from. The most common would be from a bank or lender when it comes to a mortgage. Some people borrow from friends or family. There are also risky options like payday loans or taking on high-interest credit card debt.
Did you know that if you have a permanent life insurance, it’s possible to borrow against that? These policies have something we call a cash value. You can borrow against this cash value if you need that money in a pinch. But how exactly do you do it?
Below, get an overview of what you should know about how to borrow against life insurance.
How To Borrow Against Life Insurance
You can access some or all of the cash value in your permanent life insurance policy in various ways.
Borrowing against the cash value of a permanent life insurance policy is simple. Apart from the cash value amount, there are no loan requirements or qualifications. The funds can be used for any purpose and repaid whenever you choose. Additionally, a life insurance policy loan typically has low-interest rates.
Getting A Life Insurance Loan
The process of obtaining a life insurance loan is simple. You simply complete a form provided by the insurer. Usually, the money is deposited in your account within a few days. Before receiving your loan, you may be required to verify your identity, sign a confirmation document, or provide a notarized confirmation if:
- You updated the insurer’s records within the last month
- Recently, the policy’s ownership changed
- The loan exceeds a specified size
The simplest method is to withdraw cash from your policy. Borrowing against your cash value policy may be the quickest way to obtain funds if you find yourself in a financial emergency.
How Borrowing Against Your Policy Works
The loan disbursement process is relatively straightforward. It consists of the following steps:
- Check your policy to ensure you have accumulated sufficient cash value to use as loan proceeds. You can do this online or by contacting your life insurer.
- Notify your insurer that you wish to borrow money. Indicate the amount you require and the method of payment.
- The life insurance company sends you the funds via the method of your choice.
- The insurance company will charge you a low-interest rate on the remaining loan balance until fully repaid. However, your insurance may not require you to repay the loan. For example, take the situation where someone passes away while they still have an outstanding loan balance. In that case, the balance will be deducted from the face value of the policy (death benefit).
Alternative Options
Another option is to cancel your entire life insurance policy with the insurer. After all fees and expenses have been paid, you will receive the cash surrender value, provided sufficient cash value remains in the policy.
However, keep in mind that this option will also cancel the death benefit protection you purchased for the benefit of your beneficiaries.
