Owner, Wright Insurance Agency, Great Pittsburgh Area
Permanent policies have cash accumulation in them and you are basically drawing out the cash you've put into them for personal use. There is going to be an interest charged to the money usually at around 6% where I'm at, but you don't usually have to pay that back. You also want to be aware of that if you the accumulation value gets to low and ends up going to 0 then the policy will lapse.
When you borrow against a whole life policy, which I do not recommend unless it is an emergency or special situation, you will get interest charged. You do not have to pay the money back since the loan and interest will be deducted from the death benefit, however interest can accumulate and eat up your policy benefit, so you should always at least pay the interest on the policy. In the case of a Universal Life policy, the same is true however because of the way the Universal Life policy is set up, loans can cause your policy to lapse if you are not careful. Before taking a loan on any policy make sure you discuss it with your agent or if you can no longer find your agent, talk to an agent in your area you can trust.
Co-Founder, Coastal Financial Partners Group, California
For permanent life insurance, the policy owner has the right to borrow from the cash value subject to the terms in the contract. So, the owner can borrow life insurance cash values, even prior to age 59-1/2, without a tax penalty as it is not a distribution.
Loans will reduce the policy’s death benefit and cash value available for use. But use care here since if the policy lapses or is surrendered in full while there is an outstanding loan the amount of the outstanding loan is taxable to the extent that the policy's gross cash value exceeds the policy owner's basis (sum of premiums paid) in the contract.
Policies that have a cash surrender value and have been in force for awhile have a maximum loanable value of close to the cash surrender value. Your annual statement may also have the value for loan purposes. Policies vary widely and there are many factors to consider. The best way to get a current value is to contact your life insurance professional or the insurance company directly.
Principal Agent, First Insurance Agency Inc, United States
When you buy a whole life insurance policy, your premium goes to pay for insurance protection and part goes towards investment or savings. You can borrow from your investment or savings portion of your whole life insurance. You can only borrow what you have saved in your investment or savings portion. If you borrow, you have to pay back plus interest and if you were to die without paying the loan then your insurance face amount will be reduced by amount of the loan
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Loans will reduce the policy’s death benefit and cash value available for use. But use care here since if the policy lapses or is surrendered in full while there is an outstanding loan the amount of the outstanding loan is taxable to the extent that the policy's gross cash value exceeds the policy owner's basis (sum of premiums paid) in the contract.
Policies that have a cash surrender value and have been in force for awhile have a maximum loanable value of close to the cash surrender value. Your annual statement may also have the value for loan purposes. Policies vary widely and there are many factors to consider. The best way to get a current value is to contact your life insurance professional or the insurance company directly.