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My husband is 26 yrs old and he bought whole life insurance. I tried to tell him to get term sicne we are so young, but he wouldn't listen. Can anyone help me?
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F. Stephen L | Borrowing against your life insurance? |
bases on one of several articles that I have read on the net, one of them being http://www.finweb.com/loans/borrowing-from-your-life-insurance.html
Is it really possible to borrow as an example, I purchase a 200K whole life insurance, and then borrow lets say, 100K and have the option of either paying it back + interest or just pay the interest? If so, how long do I have to wait from date of purchase?
Additional Details
when I mean borrow 100K I mean borrow against my policy. |
 |
 
aaron p
 |
It's funny that they don't really talk about the down side potential in that article. Sure you can take a loan on a permanent policy. If you're in a high tax bracket, almost any well-trained insurance agent will be able to produce an attractive looking illustration.
Paying interest on the loan will not stop the mortality and administration costs from coming out of your policy, and this is usually the biggest expense you would have with a policy (it is life insurance after all). The insurance company is more than happy to show you how to potentially avoid paying income taxes, but now you have an added risk from them. They could lower dividends, cut interest rates or even increase those internal costs without telling you first.
Another thing the article does not address is the potential tax consequence of taking a loan. It may be tax free today, but what if your loan exceeds what you put into the policy and it becomes too expensive to keep? If your policy lapses and you have a loan that exceeds your cost basis, now you get to pay the taxes - all of it - in the year the policy lapsed. I can tell you from personal experience fixing other policies, avoiding this tax by keeping the policy in force could be expensive.
This is sometimes called "phantom income" and is an additional risk that the average investor is not exposed to. Qualifying the risk that an insurance company poses to your income stream is hard to qualify. Past performance is not a good indicator and neither is company strength.
You're hearing a complicated pitch, but the problems are complicated too. Here's an article I wrote to help balance what you're reading. |
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Mark S
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When you borrow, the ONLY money you can borrow is the cash value that has accrued, to date. YOU CANNOT borrow against the face amount!! The only exception being if you are dying then you can borrow against the face value of the policy, usually up to 75% of the policy. There are some term insurances that allow this too.
Just know that the company can take up to 6 months to pay you. Read the section for borrowing against the cash value in your policy. |
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bi66al
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Look, these geniuses have all the answers, but aren't clear on the questions. You can buy any amout of permanet life ins., probally $5000 to $10,000 min. But, they all work similarly. It will take at least 7-12 years for what you are paying in premiums to hit the 'break even point' where what you pay as an annual premium is being returned in the cash value. So you have some of the premium being returned after the second year, than a little more each year until the break even point. So even with a dividend or interest or a gain from a mutual fund it will take years to build 1/2 of the death benefit in cash. The basic reason is insurance IS NOT AN INVESTMENT, or actually a saving vehicle like a CD or savings account. The reason why? Oce you pay the first premium, the company is on the line for the death benefit which is treated by the IRS as tax free.
If you have an old policy given from your parents or one that is 15-20 years old, borrowing the cash value from policy is costing at least 5-8.5% interest. And yes you do not have to pay this back. BUT, the policy will cancel if interest is not paid at some point. Without confusing you further, call a licensed insurance agent and ask for an appointment. He will be glad to show in black and white, under no obligation what I am trying to explain.
These fools telling tou this are talking about when interest rates were 10% or around and putting in a CD, or investment. The interest rates for borrowing were 5-6% back then, and still are, but what are interest rates now and most people since the 80's have spent the insurance monies! |
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Carrie
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once you have accumulated enough value, then yes, you may borrow against it. however, you will need to watch how much you borrow. i would suggest not borrowing more than what you have paid into the policy. then, if the policy happens to lapse or be cancelled, it would only cause a taxable event if you borrowed more than what was paid. if you do take a loan against the cash value of your policy, you really should continue to pay the premiums in addition to the loan interest due. if the interest is not paid on the loan, then the interest amount is added to the loan balance - usually at a higher rate. if it comes to a point where the loan balance exceeds the cash value, the policy will lapse and you won't have an opportunity to reinstate it. also, any remaining loan balance at the death of the insured will be deducted from the death benefit. borrowing against a life insurance policy is a good idea if you know you are eventually going to pay it back. |
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T
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Life insurance CAN BE AN INVESTMENT! It's a slightly complicated strategy...and you need to do your homework...but EIUL...if managed properly can be a GREAT investment.
This is NOT for everyone...and is a very specific strategy, using an EIUL policy. And it works!!!
So do not say that life insurance should NEVER be used as an investment. It can. You just need to know what you doing. (Like almost all other investments.) |
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tymmy
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VERY interesting guide info about your Question HERE:
http://all-insurance-online.blogspot.com
Good luck! |
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