- For permanent life insurance (whole life insurance and universal life insurance)
Understanding Life Insurance Loans
- Permanent Life Insurance: These policies, such as whole and universal life, build cash value over time. Policyholders can borrow against this cash value.
- Term Life Insurance: This insurance does not accumulate cash value. Therefore, you cannot borrow against it.
How It Works with Permanent Life Insurance
- Borrowing Process: You can take a loan against the cash value of your permanent life insurance policy.
- Interest Rates: These loans typically have lower interest rates than bank loans but vary by policy.
- Repayment Terms: Flexible repayment terms, but unpaid loans and interest can reduce the death benefit.
- Tax Implications: Loans are usually tax-free but consult with a tax advisor.
Considerations Before Borrowing
- Impact on Beneficiaries: Unpaid loans can reduce the payout to beneficiaries.
- Policy Surrender: If the loan balance exceeds the policy’s cash value, the policy might be surrendered.
- Financial Planning: Consider other financing options and consult with a financial advisor.
Borrowing against your permanent life insurance policy is a viable option for financing a home purchase, offering advantages like lower interest rates and tax benefits. However, it’s important to understand the implications on your policy and beneficiaries. For personalized advice, contact us today for a free quote.
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