Life insurance is your loved ones’ financial lifeline in the event of the worst possible scenario. However, some policyholders choose to take out loans on their life insurance policy.

Does it really make sense to tap into the life insurance financial nest egg?

Insure It All, serving Idaho Falls, ID, provides insight into this question below.

Borrowing Against a Life Insurance Policy

Oftentimes, it is logical and prudent to take out a loan against the equity built up in a life insurance policy. Such “cash value” comes in handy when life throws a curveball, be it a reduction in work hours, loss of employment, a car accident or health issue.

Tap into the value of your life insurance through a loan and you’ll receive an influx of cash without completely closing your life insurance policy.

What About Borrowing Limits?

Permanent life insurance policies gradually accumulate cash value as time progresses. You are permitted to borrow against that cash value within certain limits.

The idiosyncratic structure of your unique life insurance policy determines how much you are allowed to borrow. The best part is your life insurance company probably won’t check your credit score, employment status or level of income when you ask for a loan.

Moreover, most life insurance loans have favorable terms. Such loans typically have competitively low interest rates superior to those available through credit cards and personal loans.

Paying off the Loan

The advantages of borrowing against life insurance as described above won’t last forever. If you fail to pay back the loan as promised, there will be ramifications. 

As an example, if the amount owed increases beyond the policy’s cash value, you’ll likely have to pay taxes for borrowing. It is also possible that such a scenario will lead to the lapsing of the loan as the full amount owed no longer balances with the death benefit.

However, if you proactively pay off the loan, you will regain the policy value, creating the potential to borrow yet again across posterity.

Insure It All is on Your Side

If you are considering a life insurance policy, reach out to our professionals for more information. We serve the entirety of Idaho Falls, ID and beyond. You can reach us at 208-522-3380.