Borrowing Money

Borrowing Money Against Life Insurance Policies

Borrowing Money

Cash values associated with permanent life insurance offer more options for policy owners. The existence of cash-values has allowed policy owners to use permanent life insurance plans as emergency funds and for other purposes. Borrowing from cash-value policies is commonplace.
The policy loan provision states that a policy owner can borrow a certain percentage of the available net cash value on a permanent life insurance plan. In some cases, withdrawals are treated as loans. The policy owner is required to repay the sum withdrawn. Interest is included, depending on the structure of the plan.
The terms of the policy contract would clearly explain the provision as it applies to the particular plan.
In several cases, insurers are generous enough to treat policy loans as interest-free withdrawals. Absolutely no penalties are levied against the policy in the event of a withdrawal. In this context, borrowing is more advantageous.
If you are using the cash value as an emergency fund, then your borrowing should only occur due to unforeseen, high-priority emergencies.
Borrowing from life insurance is not always a conscious decision. An automatic premium loan provision exists with permanent life policies. When renewal premiums are not paid on time, the premium is deducted from the cash value and treated as a loan. Where this is treated as an interest-bearing loan, problems may arise. You may discover that your cash value is rapidly dwindling after you missed a few premiums. In the final analysis, whether you should borrow from your life insurance depends on how you intended to use the cash value originally and the friendliness of the loan provision.

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