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Borrowing from your life insurance policy can be a quick and convenient way to get cash in hand whether you need the money for an emergency expense or an impromptu vacation. Below, we’ll explore how quickly you can borrow from your life insurance policy, the potential benefits and drawbacks of life insurance loans, as well as why you might want to consider this option. Consider speaking with a financial advisor before making big financial moves like borrowing from your life insurance.
Life insurance loans allow you to borrow money from the cash value that you build up over time as you pay the premiums on your permanent life insurance policy.
These loans typically have favorable interest rates and none of the stringent eligibility requirements of traditional loans. In fact, you can repay the loan at your own pace or even forgo repaying it altogether. But keep in mind that whatever isn’t repaid may be deducted from your policy’s death benefit, reducing or eliminating your loved ones’ payout when you die.
To borrow from your policy, you’ll first need to verify that your policy includes a borrowing provision. Next, check the cash value of your policy and ensure it’s large enough to support your loan. You’ll then request a policy loan from your insurer, review the requisite documents and sign the loan agreement to receive your money.
The timeframe for borrowing from your life insurance policy can be influenced by several factors including the general rules that govern these loans, as well as how quickly your policy accumulates its cash value.
First and foremost, loans are only available within policies that include a cash value. This means you’ll need a permanent life insurance policy – like whole, universal or variable life insurance – in order to borrow money from it. Since term life insurance does not include a cash component, borrowing from these policies isn’t permitted.
Next, most insurers will typically only allow you to borrow up to 90% of the cash value that you’ve accumulated. So if you have a $10,000 cash value, you’ll be eligible for a $9,000 loan. If your borrowing needs exceed the cash value, you’ll need to look elsewhere for additional funds.
Since you can’t take out a loan that exceeds your cash value, you’ll have to wait until you’ve built up enough cash to fund your loan. Of course, the more money you need to borrow, the longer it will take to build a large enough cash value.
Factors influencing how quickly you can accumulate enough cash value include the size of your premiums, the rate at which the cash value grows and the type of policy you have.
When faced with a financial emergency, your life insurance policy can be a quick cash solution. Policyholders may borrow from their life insurance to pay for large unexpected expenses, such as medical bills or home repairs.
Then again, there are no limits or restrictions on how you can use the money – it’s your money after all. Borrowing from your life insurance policy is one way to free up cash to cover discretionary expenses, like a vacation or a new car.
Life insurance loans may be attractive for a variety of reasons, including their low interest rates and general lack of eligibility requirements. Here are some of the most notable benefits of borrowing from a life insurance policy.
Despite the potential benefits, there are also points that might be of concern when borrowing from your life insurance.
Borrowing from your life insurance policy can be an easy and cost-effective way to free up cash for all kinds of potential expenses. How quickly you can borrow from your policy, however, depends on how much money you need and how large of a cash value you’ve built within your policy. Keep in mind that insurers typically only allow you to borrow up to 90% of your cash value and money that isn’t repaid can reduce the death benefit your beneficiaries will receive when you die.
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