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Reasons To Borrow Against A Life Insurance Policy

May  12,  2016 in

When you are faced with an urgent need for cash due to an emergency, you may be tempted to take out a loan against your life insurance policy. Financial emergencies can pop up at any time and for many different reasons. Your car may have broken down and is your only source of transportation, or you may be faced with urgent home expenses such as your heater or air conditioner breaking down. Maybe your roof is leaking or you have a flooded basement. Cash needs like these are relatively short-lived, one-time expenses, while others can represent an ongoing outlay of cash that you simply don’t have.

The most common reasons why most people borrow against their life insurance policy are losing their primary source of income when they still need to pay bills, their mortgage or rent, and other living expenses, or a medical catastrophe such as a life-threatening, advanced-stage illness. If you own a whole life or universal life insurance policy and need emergency cash, then borrowing against the policy may be a smart thing to do.

Permanent Life Insurance Policies Build Value

If your life insurance policy is a term life policy and have been diagnosed with a life-threatening illness or disease, you may be able to borrow money against your policy from your insurer or through the Funds For Living Program. By contrast, permanent life insurance policies like whole or universal policies accumulate funds over time – the longer you’ve held the policy, the more value it holds, with most policies having enough cash value to borrow against by the time it has been in force for ten years. When you borrow against your life insurance policy the cash that you receive is tax free, which is a big advantage. Another advantage is that you are not lowering your cash value – you are borrowing money from your insurer, and they are using your cash value as collateral.

Advantages of Borrowing Against Your Own Life Insurance

In addition to the fact that a life insurance loan is tax free, there are many other advantages. One big one is that there is no requirement that you repay the loan, though it is smart to do so. Your life insurance company will offer you the option of not repaying, repaying via periodic payments of principal with annual payments of interest, paying interest only, or deducting interest from your cash value. Though choosing the last reduces the face amount of the insurance policy when the claim is paid, it offers a much-needed lifeline when repayment is simply not possible due to financial hardship.

When Is Borrowing Against Your Policy a Good Idea?

Though the money is available, it is a good idea to reserve borrowing against your life insurance policy as a true emergency option. Some examples of when it makes the most sense include:

  • When you know you won’t qualify for a standard loan
  • When you need cash very quickly and can’t wait for the application process for a traditional loan
  • When you can’t afford to pay your policy’s annual premium but don’t want it to lapse
  • When standard loans or available loans are only available at higher interest rates

In addition to being able to borrow from your own insurer, Fifth Season Financial offers a special option for those who have been diagnosed with an advanced stage or terminal illness. The loan is available against almost any type of insurance policy with a value of at least $75,000, there are no restrictions on what the cash is used for, and the process is quick and easy. Once approved recipients are no longer responsible for paying their premium, and in 90% of loans made beneficiaries still receive funds. For more information on how our Funds for Living Program works, call us today.

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