How to Borrow Money from your Life Insurance

By February 6, 2017 Life insurance 12 Comments

If you have permanent life insurance, you may be able to access cash value that has accumulated in your policy over time. This could be a helpful alternative to taking out a bank loan, but there are a few things you should consider first.

What are the pros of borrowing money against your life insurance policy?

Low interest rates

It is likely that money taken from your life insurance will have lower interest rates than a loan taken out from a bank. The interest rates on loans and credit cards can be sky high, but insurance policies can offer a much more affordable interest rate that won’t break the bank. When looking into borrowing against your life insurance, make checking interest rates your priority.

No need for a credit check

If you want to get a loan from the bank you have to go through the lengthy process of application forms and credit checks. But when it comes to your insurance, it is a much smoother and easier process. If the money is available in your policy, then it is yours, without any fuss. You don’t need to complete a credit check or answer any questions. If the money is there, it’s yours.

No time limits on repayment

Usually when borrowing money, you can feel the pressure from the bank to pay it back as soon as possible. But when you borrow from your life insurance policy, you don’t have a strict repayment schedule. There are no looming deadlines or threatening letters through your door. You can rest easy knowing you can pay back your loan whenever suits you. However, you should make sure that you definitely pay the money back.

No fixed payment plan

It is crucial to pay back the money you borrow from your life insurance policy. However, the pressure is off as you don’t need to part with huge monthly sums to pay it back. You can decide how much you wish to pay back in instalments. This allows you to calculate how much you can afford to pay each month. You are in control of the repayments and can carefully fit it within your budget, which is one less thing to worry about.


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Less hassle

Getting a loan from the bank can be a long, drawn-out, complicated process. You can feel weighed down by the credit checks and application forms and the endless trips to the bank to sign papers. Taking a loan from your policy is a much simpler process with little hassle. You don’t need to visit the bank or fill in a mountain of forms. You will likely only need to fill in one form, and as long as you have money to access, it should be a relatively easy business.



What are the cons of borrowing money against your life insurance policy?

Lack of cash available

You may look at your life insurance policy and be thrilled at the amount of money your family would be set to receive in your absence. But look carefully at how much you have access to during your policy. Life insurance policies need time to develop monetary value. You could have your policy for many years before you’re able to access a substantial amount. Speak to your financial advisor about your options and how much you can expect to receive if you were to consider borrowing from your policy.

Risk of losing your insurance

It’s key to always monitor your loan from your insurance policy. If the money you borrowed and the interest on top amounts to more than your insurance policy’s monetary value, you could end up losing your entire policy. Your life insurance policy could become invalid and could lapse if you end up borrowing too much money, and not carefully considering the interest rates on top of the cash value. Always do the math before borrowing from your loan to ensure that the interest rates on top of your borrowed amount do not jeopardise your policy.

Your death benefit could be affected

If you borrow from your life insurance policy, you should ensure that it is paid off before something happens to you. If you do not repay the money while you are still alive, your family could be left with a bit of a hassle to sort out. In some cases, your policy may cover it, but it’s always worth considering if you will be able to pay back the loan in a shorter amount of time.

How can I borrow money safely and securely?

There are so many upsides and downsides to borrowing against your life insurance policy. It may be exactly what you need to help in a difficult financial situation. It could also be an attractive alternative to a stressful bank loan. Or there could be too many consequences associated with interest rates and the risk of it affecting your policy. It is a decision to make carefully, weighing up all the pros and cons and seeing if it suits your needs. Here are a few things you can do to make the life insurance policy loan a safer decision.

Create your own repayment schedule

Although you will not be chased by your insurance company each month about fast and strict repayments, it is wise to be on top of it yourself. If you don’t, you could end up in the red a lot more than you realise. Be smart about your repayments and make a plan to stick to. You could pay back a certain amount each month, or every two months, depending on your budget. Just make sure you stick to it so you don’t fall behind.


Make regular repayments

By making regular payments you can be in a comfortable routine so you don’t end up feeling swamped in debt. Try to stay on top of repayments and don’t let your loan slip your mind!

Speak to your financial advisor with issues

If you have any issues or questions regarding your life insurance policy and money you may borrow from it, speak to a qualified professional who can help you make better decisions.


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