How to Borrow From the Cash Surrender Value of a Life Insurance Policy

Whole life insurance, universal life, variable life and policies that are hybrids of these all have cash value. You can borrow from the cash surrender value of a life insurance policy and never have to pay the loan back to the company. The insurer subtracts the loan from the death benefit when it pays the claim. The insurance company charges you annual interest, but also increases your cash value so the amount is normally less than 1 percent. Most companies allow you to borrow up to 90 percent of the cash value.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• Telephone number of the local office or customer service
• Cash value loan form

1. Find your policy number. You need the policy number to request a loan. Some customer service departments can find it for you with your social security number, but it takes a little longer to process the loan.

2. Call the customer service line for your insurance company or contact your local agent. The service people can tell you the amount you have available for a loan. Often you don't even need to speak to a person since there's a computerized voice that lets you know how much you have available for loan.

3. Decide on the amount of money that you want. If you're in dire need of funds, you simply ask for the maximum loan value.

4. Request the appropriate form. Some companies require a form to borrow money from your life insurance company and others can trigger a loan for you right over the phone. If you're not the owner of the policy, you cannot borrow from it. Sometimes parents purchase policies on their children and forget to transfer ownership. If this is the case, you need to get a form to change ownership. If you own the policy but aren't the insured, you have to use a form to borrow from it. You can't borrow by phone.

5. Fill out the form. They're relatively simply and involve your name, address, policy number and social security number. If you want a specific amount, put that in the request area. If you simply need all the cash you can get, mark maximum loan available.

6. Mail in the form to the insurance company. Make a copy of the form before you mail it. Save the copy until you receive your check. Once they receive the form it takes about 8 to 10 business days to get your check. If you borrowed from your life insurance policy over the telephone, the check should come within that same period without waiting for the form to travel both directions.

Tips & Warnings

• If your situation is urgent, you can save time by picking up the form at the local office if your insurance company doesn't make policy loans by phone. If you borrow maximum amounts from a variable life policy, watch the market and if you have time, try to call before it closes on an up market day. You'll have more available. If you need the money and time is of an essence, you can request that the company overnights the check at your expense. They'll subtract the money from the amount you receive for the loan. Most people don't borrow from their cash value unless there's nowhere else to turn and time is at an essence.

Resources

• Life Insurance Borrowing