When you take out a loan against your life insurance policy, you’re essentially borrowing money from the cash value of the policy. Here are some key details:
1.Cash Value: Permanent life insurance policies (such as whole life or universal life) accumulate cash value over time. This cash value can be used as collateral for a loan.
2.Loan Amount: The amount you can borrow depends on the cash value of your policy and the terms of your insurance company. Typically, you can borrow up to a certain percentage of the cash value.
3.Interest Rates: Loans against insurance policies often have relatively low interest rates compared to other types of loans. However, the exact rate can vary depending on the insurance company and policy terms.
4.Repayment: You’re not required to make regular payments on the loan. Instead, the interest accrues over time and is usually deducted from the death benefit if the loan is not repaid before the insured’s death. However, you have the option to repay the loan at any time.
5.Impact on Death Benefit: If the loan is not repaid before the insured’s death, the outstanding balance, plus any accrued interest, will be deducted from the death benefit paid to the beneficiary.
6.Tax Implications: Loans against insurance policies are generally not taxable as income, but if the policy lapses or is surrendered with an outstanding loan balance, any gains may be subject to taxes.
7.Policy Continuation: Taking a loan against your insurance policy does not cancel the policy. However, if the loan and interest exceed the cash value, the policy may lapse unless you repay the loan or use other funds to cover the shortfall.
It’s important to carefully consider the implications of taking a loan against your insurance policy and to review the specific terms and conditions of your policy with your insurance provider.