MrInsurability July 29, 2016 No Comments

MrInsurability.comAfter looking at some different types of life insurance coverage, you may remember that it was mentioned that there was a possibility of borrowing some of the money that had built up in a policy.

People enter into insurance contracts because they would like to have something to help keep things going, in case the insured person passes, leaving the family without an income. Besides the passing of the policy owner, there are other kinds of losses, like that of a family member or a significant financial loss of some kind. Can an insurance policy be of help in those cases?

The answer is yes, it certainly can. The common belief is that an insurance policy can only be used once the owner passes or reaches the age of 120, at which time the policy matures. To the contrary, policy holders can benefit from their insurance policies even before either of those two occurrences takes place!

An insurance policy holder, who is in need of cash, can choose to take a loan on his life insurance policy. This means that the policy holder can borrow money from the insurance company, by using the total value of his life insurance as the collateral or guarantee.

A policy holder who is in the midst of a financial crisis and who has no other means of getting financial aid would be fortunate to be in a position to make use of his policy loan option, to solve his problem. Knowing that, people who still have other means of getting financial aid should really consider the advantages and disadvantages of getting a policy loan, before simply going ahead and doing it.

People will many times choose a policy loan because of the relatively low interest rates, as compared to other loan options. Other people borrow on their policies, with lower interest rates, to pay off their loans that are high interest-bearing.

It is always easier to borrow under a policy loan because of the 100% approval rating, provided the amount loaned is not greater than the total cash value of the life insurance policy or of the total of the premiums that have been paid.

Selecting the policy loan is usually the fastest way to get a loan and there are no restrictions as to how the money would be spent.

An important fact to remember is that taking a policy loan is always a better option than terminating your insurance policy, as the policy may have a very low cash surrender value at that time. It is also a better option as compared to withdrawing from your accumulated or total cash value, because that money will be taxable income.

While a policy loan may have its advantages, it also has disadvantages for the policy holder.
Policy loans are just like regular loans, in the sense that the borrower has to pay them back at specified periods.

Also, if you fail to make your payments, the insurance company will be forced to use your remaining cash value, which will result in your policy having a lower or even zero cash value in the long run.

When this happens, the insurance company will terminate your insurance contract and you will be forced to either pay the policy loan or surrender your policy. Surrendering the policy will result in more financial problems, as it will require you to pay charges as well as taxes.

Some people, who can no longer pay their premiums, take a policy loan and then purposely allow their insurance policy to be terminated. If you think that you can benefit from doing this, then you need to think again. In all likelihood, this will actually work against you. Insurance companies are not stupid and have many provisions to prevent this type of tactic.

Taking a policy loan is advisable only for the most necessary reasons. Borrowing on your insurance policies should not be done after great consideration. Make sure that you pay it back or you’ll take the risks of having your cash value depleted, your insurance policy terminated, or your lifeline reduced or even removed when you need it most.