How do I go about getting a loan?
Our sample client, Jack, is 45 years old and purchased a whole life policy. After five years of paying his premiums, Jack decides that his family needs a newer car. He thought about going to the local credit union but decided it would be easier to buy this new car using funds from his life insurance policy that has now accumulated $43,000. Jack needs to borrow $30,000 for that new car. This means that Jack now needs to know how his life insurance loan could work.
A phone call to the life insurance carrier with a loan request will allow the company to issue a check for the requested loan amount. A physical check is delivered to the insured for the amount requested as long as there is sufficient cash value in the policy to allow the loan. The typical amount that can be loaned by the company is approximately 90% of the policy's current cash value.
Interest is charged on that loan to the insured. The current loan rate on a whole life policy that I own is 5.6%. Rates will fluctuate so be sure to call your carrier for details specific to you.
Do I need to pay this loan back? There is no requirement that you pay the loan back. However, if not repaid, the face value of the policy and the cash value account of the policy will decrease and can ultimately lapse the policy. Lapsing the policy means that it is no longer in force with insurance carrier.
A wise way to handle a loan is to structure repayment on the policy loan just as you would a traditional car or home loan. You can use an amortization schedule to determine how long you would like to choose to repay the loan. Add in the current interest rate that you are being charged and you may begin your repayment.
Repaying your policy loan is simple. You can send the insurance company a physical check each month or you can set up automatic payments from your checking account.