Life insurance loans offer a flexible solution for cash flow situations that may arise out of emergencies or to take advantage of business opportunities.
Word of caution: If you are taking a loan to take advantage of business opportunities, be sure that you have the knowledge and expertise in that type of business, or don’t take the policy loan.
The process of taking a loan against the cash value of a whole life policy can be a little intimidating the very first time you do it. Thankfully, the process is very simple, and we’ll help so you can approach it for the first time like a pro.
Step 1: Check Your Available Cash Value
The first step in taking a life insurance loan is deciding how much you need and how much money you have available in your policy. If you registered for online access to your policy values, just about all life insurers will provide you with a cash value summary report that usually includes a maximum loan available section. You can borrow any amount up to this maximum.
If you don’t have online access to your policy, you can always call the life insurance company’s customer service line. You can generally go through an automated service that will ask for your policy number and a few other personal identifying pieces of information before reading off your policy values to you.
If the automated service is available, there’s no need to wait on hold for a live person to accomplish the task of looking up your policy values.
Step 2: Determine The Amount You Need To Borrow
When deciding how much you want to borrow against your life insurance policy, we’d generally recommend that you aim low. If you decide later that you need more money, you’ll simply repeat the steps detailed below to initiate a new loan request.
You should be careful to avoid borrowing for non-essential expenses you have to meet while cash is tight. Make sure you leave enough money in your cash value account to cover the interest on the loan.
Step 3: Request The Loan
The easiest and quickest way to initiate the loan process is to call the life insurance company and request a loan from a customer service representative. Some insurers allow loan requests online in the same portal mentioned above that you can use to check your policy values. If this is available, this is another great option.
Few life insurers require an actual loan request form these days, and you want to avoid that if at all possible. Additional paperwork always slows down the process, but it may be necessary if the requested loan amount is greater than the amount allowed via online or calling.
There is no creditworthiness you need to prove nor any loan application you’ll need to fill out. Life insurance policy loans are a contractual feature that’s available to all policyholders whenever cash values are available.
Policy loans are not dependent on any evaluation of your likelihood to repay them. Life insurance policy loans do not show up on your credit report and they do not affect your credit for loans you apply for with a bank.
Generally speaking, loan requests take about a week to process, if everything is in good standing.
Some insurers will transfer loan money via EFT directly to your bank account if the account is on file. They will require banking information to do this (often a copy of a voided check, and some insurers will also require an EFT form be filled out and signed by you).
Other insurers will insist on mailing the money. If receiving the check by mail, make sure that the insurance company has your updated mailing address on file.
Once you receive the loan, you’re free to do with the money whatever you wish. If you plan on repaying the loan, then you should at least be thinking about how you will go about it. At a minimum, you should always plan on repaying the loan interest.
Step 4: Repaying The Loan
Life insurance loans do not come with a fixed repayment schedule. You won’t receive a repayment coupon booklet, nor will you regularly receive loan repayment notices each month from the life insurer. The most you’ll receive regarding the loan is an interest accumulation statement that comes around the time of your policy anniversary date. You’ll have the option to either pay the accrued interest or add it to the outstanding loan balance. This will increase your loan balance and the following year’s interest payment.
When you make loan repayments, you’ll almost always make a 100% payment to the loan balance. You can make repayments in whatever amount you want, and under whatever schedule you want to.
One option is to send a check to the life insurer to repay the loan. You can send checks in whatever interval is convenient to you (e.g. monthly, quarterly, etc.). You’ll simply send the check to the life insurance company’s address for payments and note that this is a loan repayment on your policy, and don’t forget to add your policy number on that check. The insurer will apply the payment to paying down the loan balance.
Another option is to establish an automated repayment with the life insurance company through an electronic funds transfer (EFT). This means you’ll set up a re-occurring draft of some fixed amount against your bank account to go towards the repayment of your loan. You do not have to set this up when you take a loan.
A third option is to pay your loans via your portal if available.
There is no penalty for making varied payments to a policy loan and there is no penalty for paying the loan off early or for making no regular payments to the loan.
Life Insurance Loan Interest
The interest rate charged on your loan will depend on the policy you own and/or the insurance company. Some insurers charge fixed interest rates, while others have variable rates on life insurance loans. You’ll know the rate charged when you originate the loan.
All you need to do is ask the insurance company what it is. You’ll also see the loan interest rate when you receive your interest charge with or around the time of your anniversary statement.
If you have a variable loan interest rate, the policy contract will detail how and when the rate can change. Usually, changes can only occur during a policy anniversary.
In conclusion, life insurance loans are a very efficient way to acquire needed cash during an emergency or to take advantage of business opportunities. The good news is the process is simple and comes with a lot of flexibility concerning repayment.
1. Immediate Cash Access.
2. No Credit Checks.
3. Flexible Repayment Options.
4. Potentially Lower Interest Rates.
5. Preserve Your Cash Flow.
6. Your money does double duty when you take a policy loan: you have access to the money you need and that money remains in your policy earning interest and dividends. The reason for this is because the loan money does not come from your cash value. It comes from the General Account of the insurance company, while the amount of the loan is collateralized by the same amount of cash value.
If you would like to learn how you can grow a substantial amount of cash that you have access to at any time without penalties, is unrelated to the stock market, and will generate income that is not included in your tax return, visit our website at http://InfiniteBankingSimplified.com/ or feel free to email us your questions at ContactUs@InfiniteBankingSimplified.com or call us toll-free at 1-844-443-8422.
Isis B. Palicio, LUTCF, MBA
Pedro A. Palicio, MBA, Ph.D.
Infinite Banking Concepts® Authorized Practitioners
We are experts in designing high cash value dividend-paying whole life policies.