How to Borrow From Your Life Insurance Policy

If your insurance policy has a cash value, you may be able to borrow against it for quick cash at very low interest. You must be the policy's "owner" to borrow.

Difficulty:

Moderately Easy

Instructions

Things You'll Need

• Calculators
• Life Insurance Policy

1. Determine your policy's approximate cash value by looking at your last annual statement from the insurance company, and plan on borrowing no more than 90 percent of that value.

2. Find the policy's contract number on the title page of the policy or on your annual statement.

3. Call the insurance company's home office during regular business hours, usually 8:30 a.m. to 4:30 p.m. in each time zone. Earlier in the day is usually a better time to call.

4. Choose the key prompt for "customer service" or "policy owner service."

5. Give the customer service representative your policy's contract number and indicate that you want to borrow against the policy.

6. Ask the customer service representative for the policy's exact cash value and how much of that amount you may borrow.

7. Ask when you can expect to receive a check in the mail, and write down that date.

8. Document your call by writing down the first and last name of the customer service representative and his or her direct phone number or business extension.

Tips & Warnings

• Your local insurance agent or agency will have the insurer's home office contact information if you're unable to find it.

• During your call for the loan, be prepared to answer a number of questions that will help verify your identity as the policy's owner.

• To ensure that you get the policy's maximum loanable value, ask the customer service representative when the insurance company credits your policy's cash value with dividends, interest or other gains. You may want to wait to borrow until those credits have been added to your account.

• Though you don't have to repay a loan against your policy, any unpaid loan balance and accrued interest will be subtracted from what the policy's beneficiary receives at the death of the insured.

• Outstanding loan balances may trigger a "tax event" (typically the issuance of an IRS Form 1099) if you choose to cash in (or "surrender") your policy at a later date.

• If a high percentage of the policy's cash value is borrowed and premiums are not paid on time, the policy may lapse, resulting in the loss of coverage (the "death benefit" paid to the beneficiary) and possibly triggering a further tax event.

• Certain types of "cash-rich" insurance policies have been designated "modified endowment contracts" (or MECs) by the IRS. Loans against MECs are not tax-free. If you suspect that your contract might be an MEC, be sure to ask about the loan's possible tax consequences before you borrow.