Few life insurance policies allow the policy holder to borrow against it; such policies include universal life coverage, whole life and variable. But, how will a person know that he can borrow against their life insurance policy? Let’s discuss this in following paragraphs.
In the initial six to ten years when life insurance coverage is in force, usually there are insufficient funds in your account to make this proposal worthwhile, except when you are over-funding your life insurance policy especially for this very purpose.
Now as soon as you have sufficient funds in your policy account for the loan to be beneficial, you can think of availing a loan against it. As and when you decide to borrow funds from your life insurance policy, you will have to pay much lesser interest on the money borrowed as compared to other lenders.
Apart from this, this particular loan will not wipe out any funds from your policy and it will continue to earn the interest. Additionally, you need not pay the principal amount and any interest accrued on some set schedule; the lending company will issue a yearly statement which will announce the amount for the annual interest charges. You will either have to pay this amount or just add this to your loan. You can pay the principle amount anytime or can even decide to never repay at all.
These are just few important things which you should keep in mind while considering a loan against your policy. You must consider the necessity of taking the loan and whether you can repay it back in time along with the due interest when you are borrowing from your own life insurance coverage?
You are the best person to answer all these questions and only you can decide whether to avail this loan or not. You must keep in mind that you can put your insurance coverage at risk and all the benefits which your family would receive from such a policy once you decide to avail the loan and then at a later stage find that you are unable to repay the loan amount.