Should You Borrow Money from Your Life Insurance Policy? - Leonard Financial Solutions
Should You Borrow Money from Your Life Insurance Policy?
It’s one of the most common questions we hear from clients: “Is it okay to borrow money from my life insurance policy?” The short answer - yes - as long as your policy has cash value. But there are some things to be aware of if you do choose to borrow money from your policy. While doing this can be a quick and easy way to get cash in hand, it also comes with a few caveats.
Yes, You Can Borrow Money from Your Life Insurance Policy
If you have permanent or whole life insurance in NJ, you can borrow against this policy. The reason why you can only borrow against these policies is because they have cash value that builds over time. Term life insurance, on the other hand, does NOT have a cash value. While these policies can be cheaper and more practical, you cannot borrow money from them.
Here are the advantages to borrowing from your life insurance policy:
No approval process or credit check since you’re essentially borrowing money from yourself
No explanation required for how you plan to use the money - you can use it for home improvement projects, medical bills or a fancy cruise
Not recognized by the IRS so there are no taxes to pay
Low interest rates compared to bank loans and credit cards
No mandatory monthly payment - pay back when you want
While there are many benefits to borrowing from your life insurance policy, there are some things to know:
Loan will need to be paid back in a timely manner because the interest will accrue
Skipping payments can put your policy at risk of exceeding its cash value - if this happens your policy will lapse
Can only borrow from your policy once your cash value has reached a certain size (usually within 5-10 years)
The Verdict: Borrowing from a Life Insurance Policy is a Good Move for Some
As long as you have permanent or whole life insurance in NJ with cash value, you can borrow money from it. But it’s important to have a repayment plan so that the interest doesn’t accrue and your death benefit isn’t reduced.
If you still have questions about borrowing from your life insurance policy and if this is the best move for you, contact Leonard Financial Solutions. We have personalized solutions for all types of financial situations!