The Disadvantages of a Life Insurance Policy Loan

A life insurance policy loan is something that a lot of people are using to get access to the funds they need. Instead of taking the traditional route of a bank, they use a life insurance policy loan to borrow money. While there are a lot of people that use this strategy, it is not always the best method to get the money you need.

Risking Your Policy

The biggest disadvantage of a life insurance policy loan is that you are risk your insurance policy. If you were to default on the loan, you would lose your policy. Everything you have paid into the policy for many years will mean nothing. Your family will be at risk until you find another policy.

If you are older when this happens, you may not be able to find another life insurance policy that will provide you with the same benefits. This will put your family in a bad situation because they may be left with all of your debt and no way to repay it. This is one of the worst things that could happen to the financial well-being for you and your family. Your top priority should be to provide for your family and a loan can quickly undo many years of hard work and discipline.

Too Flexible

When you take out a life insurance policy loan, you receive flexible terms to go along with it. For example, you don't have to worry about a certain repayment schedule with your life insurance policy loan. While sometimes this can be a blessing, it can also be a curse. You have to remember to make the payments on your own. If you forget about the payments or put them off, the interest keeps accumulating. This means that the interest might get out of control and the amount of your loan goes over the cash value of your policy. Not having a fixed payment sometimes works against us because we are not held accountable for our finances. Keep this in mind before the lure of easy money gets you in trouble.

Approval Process

In some cases, the relaxed loan approval process of a policy loan is actually a bad thing. With a life insurance policy loan, you can basically borrow against the money whenever you want. Sometimes, that is not always a good idea. It's almost the same idea that having a credit card with nothing on it is dangerous. It starts to burn a hole in your pocket and you look for an excuse to use it. You don't have to have a good credit score or anything to get it. You simply fill out some forms and the money is yours. For some people, that is a little too easy.

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