Why Would One Borrow From A Life Insurance Policy?

  1. 4249 POINTS
    Gary Lane
    President, Lane Independent Agency, Southern California
    For several great reasons. When you buy a Whole Life Policy, you build up cash value. You can borrow against this for such things as a down payment on a home, for a child's college education, or even for a car. The interest is very low and available within a day. If you choose, you do not have to ever repay it, although that will lower the death benefit. Your policy will continue to grow, and even grow as though the money had not been borrowed. And those proceeds are totally tax free to you. I would love to explain this in details. Gary Lane, Registered Representative, New York Life, 949 797 2424. Thank you.
    Answered on December 18, 2013
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  2. 63333 POINTS
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    Peggy Mace
    Most of the U.S.
    Borrowing from a life insurance policy is like borrowing from your own money. If you want to keep your policy's death benefit intact, you can repay the money with interest, but you are paying it back to yourself. You might use that money to start a business and forego having to get a loan from the SBA. You might use it for purposes that mean a lot to you, but for which it would be difficult or impossible to secure a loan. Your life insurance policy is your own "bank" to use as you see fit.
    Answered on December 27, 2013
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  3. 10968 POINTS
    Tim Wilhoit
    Owner, Your Friend 4 Life, Brentwood TN
    The concept of borrowing from a life insurance policy, whether it is a whole life or universal life insurance policy, is taxes. The idea of cash value life insurance is the ability to accumulate cash that is tax deferred. You may later in life or in your retirement be able to borrow down your cash value. This does two good things for you. It keeps your death benefit in tact, but can lower it as cash value is depleted and because you are borrowing your own money and the insurance company is charging you very low interest rate, Uncle Sam considers the money a loan and not income. This means your money is income tax free. Always seek the advice of your agent or company. There are a few caveats that you should be aware of while you are borrowing against your cash value life insurance policy, but it can be a very effective tool for you to use in retirement. You also have the choice to repay the cash value or not. Beware of cashing out your cash value life insurance policy because those proceeds are taxable.
    Answered on May 14, 2015
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