Do I Have to Pay Back Whole Life Insurance?

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Do I Have to Pay Back Whole Life Insurance?

No, you don’t have to pay back a loan from a whole life insurance policy. However, if you don’t, the loan amount plus interest will be deducted from the policy’s death benefit.

Understanding Whole Life Insurance Loans

Whole life insurance is a type of permanent life insurance that offers a death benefit and a cash value component. Policyholders can borrow against the cash value of their policy. Here’s how it works:

  1. Borrowing Against the Policy: You can take a loan against the cash value of your whole life insurance policy. This loan doesn’t have a mandatory repayment schedule.
  2. Interest Accrual: Interest on the loan accrues over time. This interest rate is set by the insurance company and can vary.
  3. Impact on Death Benefit: If you don’t repay the loan, the outstanding loan amount plus accumulated interest is deducted from the death benefit when you pass away. This means your beneficiaries will receive less.
  4. Policy Lapse Risk: If the loan amount plus interest exceeds the policy’s cash value, your policy could lapse.

Examples of Whole Life Insurance Loan Implications

  • Example 1: You have a $500,000 whole life insurance policy and borrow $50,000. If you don’t repay, and the loan grows to $70,000 with interest, your beneficiaries will receive $430,000 instead of $500,000.
  • Example 2: If the loan and interest exceed the cash value, your policy might lapse, leaving no death benefit.

Helpful Tool: Free whole life insurance quotes

Conclusion

While repayment of a loan from a whole life insurance policy is not required, not repaying can significantly impact the policy’s death benefit and might risk policy lapse. It’s crucial to consider these implications when deciding to take a loan against your whole life insurance policy.

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Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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