life insurance<\/a>, specifically whole life insurance and universal life insurance policies that build cash value (sorry term buyers, you’re gonna have to look elsewhere).<\/p>\nBut the process of taking a loan against a cash value life insurance policy can be a little intimidating the very first time you do it. Thankfully, the process is very simple and we’ll help walk you though the process so you can approach it for the first time like a pro.<\/p>\n
Step 1 Check your Available Cash Value<\/h2>\n
![\"Life](\"https:\/\/theinsuranceproblog.com\/wp-content\/uploads\/2020\/04\/Life-Insurance-Loan-Infographic-2.png\")
<\/p>\n
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.\u00a0 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.\u00a0 You can borrow any amount up to this maximum.<\/p>\n
If you don’t have online access to your policy you can always call the life insurance company’s customer service line.\u00a0 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.<\/p>\n
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.<\/p>\n
Step 2 Determine the Amount you Need to Borrow<\/h2>\n
When deciding how much you want to borrow against your life insurance policy, I’d generally recommend that you aim low.\u00a0 Keep in mind that you can always borrow more if you decide the initial amount wasn’t enough.<\/p>\n
If you decide later that you need more money, you’ll simply repeat the steps detailed below to initiate a loan request.\u00a0 You should be somewhat careful to avoid borrowing for non-essential expenses you have to meet while cash is tight.<\/p>\n
Step 3 Request the Loan<\/h2>\n
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.\u00a0 Some insurers allow loan requests online in the same portal mentioned above that you can use to check your policy values.\u00a0 If this is available, this is another great option.<\/p>\n
Few life insurers require an actual loan request form these days, and you want to avoid that if at all possible.\u00a0 Additional paperwork always slows down the process.<\/p>\n
There is no creditworthiness you need to prove nor any loan application you’ll need to fill out.\u00a0 Life insurance policy loans are a contractual feature that’s available to all policyholders whenever cash values are available.<\/p>\n
They are not dependent on any evaluation of your likelihood to repay them.\u00a0 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.<\/p>\n
Generally speaking, loan requests take about a week to process.<\/p>\n
Some insurers will transfer loan money via EFT directly to your bank account.\u00a0 They will require banking information to do this (often a copy of a voided check, some will also require an EFT form be filled out and signed by you).<\/p>\n
Other insurers will insist on mailing or wiring the money (wire fees usually apply).\u00a0 If receiving the check by mail, make sure that the insurance company has your updated mailing address on file.<\/p>\n
Once you receive the loan you’re free to do with the money whatever you wish.\u00a0 If you plan on repaying the loan (the majority of people who take a loan in emergency times like this) then you should at least be thinking about how you will go about repaying the loan.<\/p>\n
Step 4 Repaying the Loan<\/h2>\n
Life insurance loans do not come with a fixed repayment schedule.\u00a0 You won’t receive a repayment coupon booklet, nor will you regularly receive loan repayment notices each month from the life insurer.\u00a0 The most you’ll receive regarding the loan is an interest accumulation statement that comes around the time of your policy anniversary date.\u00a0 You’ll have the option to either pay the accrued interest or add it to the outstanding loan balance.<\/p>\n
When you make loan repayments, you’ll almost always make a 100% payment to the loan balance.\u00a0 You can make repayments in whatever amount under whatever schedule you want to.<\/p>\n
One option is to send a check to the life insurer to repay the loan.\u00a0 You can send checks in whatever interval is convenient to you (e.g. monthly, quarterly, etc.).\u00a0 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.\u00a0 The insurer will apply the payment to paying down the loan balance.<\/p>\n
You are free to vary the amount as you want to.\u00a0 For example, maybe you repay $1,000 one month, $500 the next month, and $1,500 the month after that.\u00a0 You’re also free to skip intervals if need be.<\/p>\n
For example, you make a payment in May, but skip June and July, and then start payments again in August.\u00a0 The insurer does not care when and how much you send as loan repayment.\u00a0 They’ll apply whatever payment you send whenever you send it.\u00a0 There is no penalty for doing this.<\/p>\n
You can also opt to establish an automated repayment with the life insurance company through an electronic funds transfer (EFT).\u00a0 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.\u00a0 You do not have to set this up at loan origination.<\/p>\n
So you could make repayments by check in the beginning and then establish the EFT once you’re more certain about your income.\u00a0 You’re also free to cancel the EFT at any time.\u00a0 So if you establish an EFT but things take a negative turn for you, you can cancel the EFT to suspend loan repayments.<\/p>\n
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.<\/p>\n
Life Insurance Loan Interest<\/h2>\n
The interest rate charged on your loan will depend on the policy you own and\/or the insurance company.\u00a0 Some insurers charge fixed interest rates, while others have variable rates on life insurance loans.\u00a0 You’ll know the rate charged when you originate the loan.<\/p>\n
All you need to do is ask the insurance company what it is.\u00a0 You’ll also see the loan interest rate when you receive your interest charge with or around the time of your anniversary statement.<\/p>\n
If you have a variable loan interest rate, the policy contract will detail how and when the rate can change.\u00a0 Usually, changes can only occur during a policy anniversary.<\/p>\n
Bottom Line<\/h2>\n
Life insurance loans are a very efficient way to acquire needed cash during a crisis.\u00a0 The process might appear intimidating, especially for anyone who has never taken a loan against a life insurance policy.\u00a0 But the good news is the process is simple and comes with a lot of flexibility concerning repayment.\u00a0 Many people use loans every day to meet cash needs.<\/p>\n<\/p><\/div>\n\n","protected":false},"excerpt":{"rendered":"
Podcast: Play in new window | Download Life insurance loans, particularly from whole or universal life policies, offer a flexible solution for cash flow fluctuations. The process involves checking available cash value, determining the loan amount, requesting the loan, and repaying it without a fixed schedule or penalties.\u00a0 Interest rates vary by policy and insurer, […]<\/p>\n","protected":false},"author":1,"featured_media":132268,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[94],"tags":[3767,2059,11034,1190,11372],"dealstore":[],"offerexpiration":[],"class_list":["post-132267","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-insurance","tag-blog","tag-guide","tag-insurance","tag-pro","tag-stepbystep"],"yoast_head":"\n
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