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Insurance cash value versus outstanding loan and interest

+7 votes
I was under the impression that as long as I paid my interest charges annually. In other words kept it at 0, I could keep borrowing against the cash value without paying back the priniciple (i.e. the total loan amount)

 

Is that correct?

 

Chris
asked Jun 27, 2016 by anonymous

1 Answer

0 votes
Many people have insurance policies that allow them to borrow money against the value of the policy. Furthermore, a lot of people have the idea that as long as they keep their interest fully paid on any money they have already borrowed, they are capable of borrowing more until the full loan amount has been reached. In many cases this is true, but it is always important to double check with your insurance agent concerning any particular policy. Different policies have different rules and regulations regarding borrowing money against the policy so it is vitally important that you know ahead of time exactly what you are getting yourself into before you start to count on money that may or may not be there in reality.

The reason that this is so important is because there are insurance policies out there that do not allow you to borrow money against them under any circumstances. There are still more that give you the opportunity to borrow, but they only allow you to borrow a certain percentage of the overall policy's worth. Furthermore, many policies have stipulations regarding the amount of time involved before you can start borrowing money. For instance, your policy may only allow you to borrow money after you have had the policy in full for at least one year or maybe longer. Every policy has certain stipulations regarding borrowing money and it is vitally important that you fully understand what those stipulations are before you make the decision to borrow anything against your policy.

Your best course of action is to read your policy in its entirety, paying special attention to the section related to borrowing money against your policy. If you have any additional questions, do not hesitate to contact your insurance agent. That is what they are there for. They can help you answer the questions that you have and explain anything that you might not fully understand by reading the policy itself. They might also be able to help you find options that are better for you if your current policy is not providing you with the type of benefits that you were expecting. If you want to borrow against your policy, feel free to do so but understand that you are borrowing against a life insurance policy. Therefore, it should be something that you only do as a last-ditch effort in order to prevent financial hardship in the event of something that is completely unexpected.
answered Jun 29, 2016 by larson82 (1,470)
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