Life insurance is an important financial tool that can help provide financial security for your loved ones in the event of your unexpected death. However, many people are unaware that some types of life insurance policies can also be used as a borrowing tool. In this article, we will discuss which types of life insurance policies you can borrow from and what you need to know before borrowing against your policy.
There are two types of life insurance policies that you can borrow from: whole life insurance and universal life insurance. These policies both have a cash value component that accumulates over time, which can be borrowed against if needed.
Whole life insurance is a type of permanent life insurance that provides coverage for your entire life. The premiums paid into a whole life insurance policy are split between the cost of insurance and the accumulation of a cash value. This cash value grows over time and can be borrowed against or withdrawn.
Universal life insurance is another type of permanent life insurance that provides coverage for your entire life. Like whole life insurance, universal life insurance policies also have a cash value component that grows over time and can be borrowed against or withdrawn.
Before borrowing against your life insurance policy, there are a few things you need to know. First, any amount borrowed against the cash value of your policy will accrue interest, which will be added to the outstanding loan balance. This means that you will be paying interest on the loan, just like any other type of loan.
Second, any amount borrowed against the cash value of your policy will reduce the death benefit paid out to your beneficiaries. If you do not repay the loan and the interest, the outstanding balance will be deducted from the death benefit paid out to your beneficiaries.
Third, it is important to remember that borrowing against your life insurance policy is not the same as withdrawing from it. If you withdraw from your policy, you will be reducing the cash value and death benefit of your policy permanently. If you borrow against your policy, you can repay the loan and interest to restore the cash value and death benefit of your policy.
In summary, whole life insurance and universal life insurance policies are the types of life insurance you can borrow from. However, before borrowing against your policy, it is important to understand that the loan will accrue interest, reduce the death benefit paid out to your beneficiaries, and that it is not the same as withdrawing from your policy. If you are considering borrowing against your life insurance policy, it is important to consult with your insurance agent or financial advisor to understand the potential impact on your policy and your overall financial plan.
