The Benefits of a Life Insurance Policy Loan

A life insurance policy loan is a method that some people use to borrow money without the use of a traditional lender. With a life insurance policy loan, you borrow against the cash value of your policy. The loan requires that you have a whole life insurance policy in order to borrow against it. There are a few advantages to borrowing with this loan type:

Easy Approval

With a life insurance loan, you are not subjected to the customary approval standards that you are with a traditional lender. With a traditional loan, you go into a bank; fill out several forms, and then your approval is decided based on guidelines and underwriters. On the other hand, a life insurance policy loan only requires one form and a signature. If your policy has a provision for loans, you can get the money you need without a credit, income or asset review.

Flexible Terms

Another advantage of life insurance loans is the repayment plan. Depending on your policy, you do not necessarily have to repay the loan under any certain terms. You will receive a statement every month that shows the amount of interest you are paying and the balance of the loan. If you want to make a payment you can do so. If you don't want to make a payment at the time of the statement, you don't have to. If you do not pay your loan off within the year, the interest will just keep accumulating. You can continue to do this until the loan balance does not exceed the cash value of the policy. This flexible repayment plan gives you more options than a traditional loan.

Low Interest

The interest rate that you will receive on a life insurance policy loan is usually much lower than you can get in the open market. With a traditional loan, you get whatever rate that is out there. Lenders are in the business to make money and they will charge you for using their money. With a life insurance policy loan, the rate is set ahead of time. The life insurance company doesn't make much off of the interest because you are just repaying the cash value of your policy.

Paying interest is not such a huge loss when you are paying yourself interest. Also, if you do not have the money to repay the loan immediately, the interest charges will not add up quickly. The terms are lenient and allow you to borrow the money for a longer term than you normally could for the same amount of money with a traditional loan product.

Saves Equity

Many people take out a home equity loan when they need money quickly. Instead of using up your home equity, you can take out a life insurance policy loan and keep the equity in your home. This way, it is still there if you need it. The terms and interest rate are also much better than you could get from a home equity loan.


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