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pete k | How soon can you borrow against a life insurance policy?... and how much of the total policy can you borrow? |
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Doing the Right Thing
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Typically by the third year you can borrow something from the cash value, but it won't be much because during the first two years of the policy, nothing is accumulated.
In most cases you can borrow 100%, unless its a variable life policy, which only allows you to borrow 75% to 90% of the cash value.
If you are talking about borrowing the face amount, that is not allowed unless you are terminally ill or permanently disabled. |
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Financial JUSTICE
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If you borrow you lower the death benefit! You owe monthly interest on the loan, which also reduces the death benefit!
Is that what you want to do? Give less insurance money to your beneficiary when you die?? |
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View from a horse
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Pete, I'm glad you asked this question; and, I want to compliment Do the Right Thing on his answer.
Some agents with an agenda will say you're borrowing your own money, so why do you pay interest on it.
Well, because you're *NOT* borrowing your own money. You're borrowing the insurance company's money, just like if you had a loan at your bank and used your CD as collateral. You're using your insurance policy's cash value as collateral on your loan, not borrowing your own money.
PLUS, yes, you pay interest. However, you CONTINUE TO EARN INTEREST ON YOUR CASH VALUE at the same time. Just like the CD in the example, you may earn 4% on the CD and pay 6% on the loan, for a net cost of 2% on the loaned amount.
In a permanent life insurance policy, you'll also generally earn about 2% less than the cost of the loan. The rate may be different for different types of policies; and, there are a handful where you wind up with a 'wash' or zero-cost loan, but it's rare.
As DTRT said in his answer, the amount available to borrow is usually quite low in the early years of a policy; however, it can be substantial after several years. And, you don't have to go through a credit check; and, if you find that you can't or don't want to repay it (not recommended), it isn't reported to the credit bureau. |
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schflng
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cash value policies were designed to make the insurance company money,you see,they have you pay a little extra each month,and put it in a " special account",then they pay you minimal interest, now when you read the fine print,you will find that you forfeit that money,the insurance co.is nice enough to keep that for you,then in a few years you will be able to borrow against only what you have put into that "special account"and then they charge you interest on you own money,if someone offers you a cash value policy,read that contract very carefully,do not take the agents word on anything,some of these trash value policies pay the agent 110 percent commission because trash value makes the insurance co.a lot of money.buy whole life,and invest the difference in stocks,instead of allowing the insurance co. take your money and invest it so that they make 10 to 12 % interest and then pay you only 1 to 3 % interest,you invest the difference,and you make the 10 to 12 %interest and reinvest. |
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billyshears
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Keep in mind that if you do borrow against the cash value you will be paying interest on what is supposed to by your money. Most of the time interest is charged in advance. |
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