How Much Can I Borrow Against Cash Value?
When you need to gain access to cash quickly, one of the most effective ways is with a life insurance policy loan. If you have a type of life insurance that carries a cash value, you may be able to borrow against it with a loan. The amount that you can borrow is determined by your life insurance provider and the policy that you choose.
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Life Insurance Policy Loans
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To borrow against your life insurance, you must have the proper type of policy. Your life insurance policy must have a cash value attached to it, such as is the case with a whole life insurance policy. You borrow against the cash value and then you have to pay it back with interest over time. Cash value loans typically have flexible terms that do not require you to make a payment every month.
Percentage of Cash Value
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To determine how much money you can borrow, you typically have to refer to the life insurance policy that you purchased. Most policies have guidelines as far as what percentage of the cash value you can borrow. Many policies will allow you to borrow up to 90 percent of the cash value. In some cases, you can borrow 100 percent of the cash value of the policy. You also can ask the insurance company what percent is available through a loan.
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Exceeding the Cash Value
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When you choose how much you want to borrow, you must take into consideration the consequences of what will happen if you allow the loan amount to get over the cash value. When you borrow the money and do not make sufficient payments to pay down the interest, the value of the loan could exceed the cash value of the policy. When this happens, your policy will lapse and you will no longer have a life insurance policy.
Considerations
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While this type of loan does put your life insurance policy at risk, it is usually more attractive than getting a loan from some other source. With life insurance policy loans, they are not based on your credit or income. As long as you have a cash value in your policy, you can borrow against it if loans are allowed. With other loans, if you cannot make your payments, it hurts your credit and you could face further collection actions. With policy loans, if you cannot afford to make your payments, the policy simply lapses.
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