Should You Borrow From Your Life Insurance Policy?

Should You Borrow From Your Life Insurance Policy?

If you have a life insurance policy that builds cash value, you can borrow money against the policy. While this seems great in theory, given that you will have quick access to funds at a competitive interest rate and can choose to not pay back the loan amount, you should know that not repaying the loan amount will reduce the death benefit that your beneficiary will receive if something untimely happens to you. That said, getting a policy may be better than taking a traditional loan under certain situations, like these:

You Are Temporarily Unable to Continue Working

Disability insurance pays out a certain percentage of your salary if you are unable to work due to a disability. However, if you haven’t purchased disability insurance and find yourself temporarily unable to work due to an illness or disability, you may want to borrow against the cash value of your policy to cover your expenses until you get back to work.

You Are Between Jobs

Ideally, you should have enough money saved up to cover your expenses for at least a year. But, not everyone does. So, if you suddenly lose your job or are in-between jobs and running short on money, it’s a good idea to borrow from your life insurance policy.

You’re Starting a Business

The thing about getting a traditional loan to finance your business-related expenses is that you don’t know how long it will be till your business turns profitable and you are able to make monthly repayments towards your loan. This is why a life insurance policy is a great option since you can borrow money against the policy and pay back the loan once you start making profits.

You Need to Pay a Down Payment

Buying a home, even on the mortgage, can be expensive. Given this, you can opt to borrow against your life insurance policy to pay for the down payment and closing costs.

Keep in mind that a life insurance policy is meant to support your loved ones financially. Borrowing a loan against the policy essentially puts the beneficiary’s financial safety at risk. So make sure to consult your home insurance provider before opting for a policy loan.