Life insurance policies are designed to provide death benefits to your loved ones after you pass away. There are a few policies, however, that will allow you to borrow against them if you have an emergency. If you are very careful about how you borrow against your policy, you will be able to use your benefits while you are alive and can still have your policy in place after your demise to help your family members get through a difficult time.
How Borrowing Against a Life Insurance Policy Works
It is much easier to borrow against your life insurance policy than to apply for a traditional loan. First, the equity is already there, so you are basically borrowing against your own money. Once you borrow the money, you will have a set amount of time to pay it back, normally three to five years. You will have to find out what percentage of your policy’s cash value you can apply for. How much you can borrow, and the length of the loan will depend on your insurance provider.
If you borrow against your life insurance policy, you will not get that money if something happens to you before it is paid back. You will only get what was left in your cash account. As you repay your loan, the interest will go back into the account to help rebuild your equity. One good thing about borrowing against your life insurance policy is that it has no impact on your credit rating. The loan is also non-taxable. Therefore, borrowing against your life insurance policy may be a good idea if you have a short-term emergency. However, be careful not to overdo it.
Does Borrowing Against Your Life Insurance Policy Make Sense?
One of the drawbacks of borrowing against your life insurance policy is that you will have a reduced health benefit until it is paid back in full. There may also be a hefty tax penalty if you let your policy lapse for any reason. While it may be extremely helpful for you to take a loan against your life insurance policy, you must weigh all of your options before making your final decision. Talking to the experts can give you peace of mind.
If you are in a bind and need quick cash, you may consider borrowing against your life insurance policy. If you want to know all of the pros and cons of such a loan, contact the agents at Schwab Agency. We can discuss all of your options with you so that you can make a decision that will benefit your long-time goals.