Is it Wise to Borrow Against a Whole Life Insurance Policy?
The ability to borrow against a whole life insurance policy is one of the living benefits from owning a whole life insurance policy. It can be wise to utilize this living benefit.
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Low Interest Rates
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Whole life insurance policy loans are usually offered at very low interest rates. The rate will vary depending on the insurance company and the type of whole life insurance policy, but is usually less than 8 percent.
Repayment
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Repayment of a policy loan is not required. The insurance company will take the amount owed for interest on the loan from the accumulated cash values in the policy.
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Reduction in Death Benefits
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If the loan is not repaid in full when the insured dies, the death benefit payment amount will be reduced by the outstanding loan amount and the interest owed, before payment to the beneficiary.
Loan Amount Limitations
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There are limitations placed on how much a policy owner may borrow against the policy each year. The limitations will depend on the type and amount of the policy.
Loan Offers Required
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Insurers are required to offer policy loans to whole life policy owners after premiums have been paid for a certain period of time. This period of time is commonly three years but varies from state to state.
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