Safe Money Specialist, Safe Money Solutions LLC, Harrisonburg, Virginia 22801
The short answer to the question is YES, and depending on the type of policy this is a very good practice. I like to refer to this strategy as "Financing Yourself To Wealth".
You may borrow from the cash value of your life insurance policy providing you have sufficient funds available in the cash accumulation account of your policy.
TERM life policies do not have a cash accumulation account and will not work for borrowing against the cash that has built up in your account.
To learn more about these strategies visit me at http://www.SafeMoneyRod.com
There are two types of life insurance: -
1 - Term Insurance - these typically don't have cash value (some may have a return of premium at the end of the term).
2 - Permanent Insurance - these include whole life, universal life, indexed universal life & variable life. These will typically have some level of cash value associated with them.
The policies with cash value typically do have a loan provision (check with your agent or policy language). Those policies with this provision will usually allow to borrow up to 80% of the cash value.
Word of caution... if you borrow and don't pay back any monies, the remaining cash value will be used to keep the policy active. When that cash value is exhausted the policy would lapse or you may receive a bill for a large amount to keep the policy going. This could also create a tax event on the monies you originally borrowed.
When taking money from a Life Insurance Policy you need to consider the impact on your policy when you take a withdrawal or a loan. Both are available within your policy providing you have the cash value available.
A withdrawal is taking money out of the cash value, with no intention of putting it back into the policy. The death benefit will be reduced in most cases as well as the remaining cash value. As long as the withdrawal is less than the money you have paid into the policy, there should not be a taxable event. If you do exceed the money you have paid in, then you will have to pay taxes on the amount over.
On the other hand, a loan is a great option especially if you want to pay back the money taken. Look at your policy to understand the loan provisions. There is a fixed rate and most likely a variable rate. Depending how the policy credits money, and what the expected future growth might be, will determine which loan option may work best.
Sometimes clients will take a withdrawal up to the cost basis, the premium you have paid in, then switch to a loan to minimize any tax burden. Like mentioned on the other comments, if you have a loan and the policy lapses, you will a potential taxable event which at the end of the current tax year, you will get the appropriate statement/form from the insurance company.
Please consult your agent/broker prior to making any decisions.
That is a great question! If the following things are in place, then yes, you certainly can.
- It must be a whole life policy. Term life policies have no cash value to borrow from, it's part of the reason they are so cheap.
- you must be the owner of the policy.
- the policy must be in force for a few years. Typically, the first 2-3 years of your policy's life the cash value is very small, as the premiums paid cover the cost of the insurance for the company.
- the amount that you borrow falls within the limits set by the policy. Many companies will limit the amount that you can borrow, to limit the risk that the loan balance with interest does not allow the policy to go belly up.
If you can meet all of these criteria, than chances are very good that you can have a tax free check in your hands in just a couple of days! Thanks for asking!
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You may borrow from the cash value of your life insurance policy providing you have sufficient funds available in the cash accumulation account of your policy.
TERM life policies do not have a cash accumulation account and will not work for borrowing against the cash that has built up in your account.
To learn more about these strategies visit me at http://www.SafeMoneyRod.com
1 - Term Insurance - these typically don't have cash value (some may have a return of premium at the end of the term).
2 - Permanent Insurance - these include whole life, universal life, indexed universal life & variable life. These will typically have some level of cash value associated with them.
The policies with cash value typically do have a loan provision (check with your agent or policy language). Those policies with this provision will usually allow to borrow up to 80% of the cash value.
Word of caution... if you borrow and don't pay back any monies, the remaining cash value will be used to keep the policy active. When that cash value is exhausted the policy would lapse or you may receive a bill for a large amount to keep the policy going. This could also create a tax event on the monies you originally borrowed.
A withdrawal is taking money out of the cash value, with no intention of putting it back into the policy. The death benefit will be reduced in most cases as well as the remaining cash value. As long as the withdrawal is less than the money you have paid into the policy, there should not be a taxable event. If you do exceed the money you have paid in, then you will have to pay taxes on the amount over.
On the other hand, a loan is a great option especially if you want to pay back the money taken. Look at your policy to understand the loan provisions. There is a fixed rate and most likely a variable rate. Depending how the policy credits money, and what the expected future growth might be, will determine which loan option may work best.
Sometimes clients will take a withdrawal up to the cost basis, the premium you have paid in, then switch to a loan to minimize any tax burden. Like mentioned on the other comments, if you have a loan and the policy lapses, you will a potential taxable event which at the end of the current tax year, you will get the appropriate statement/form from the insurance company.
Please consult your agent/broker prior to making any decisions.
- It must be a whole life policy. Term life policies have no cash value to borrow from, it's part of the reason they are so cheap.
- you must be the owner of the policy.
- the policy must be in force for a few years. Typically, the first 2-3 years of your policy's life the cash value is very small, as the premiums paid cover the cost of the insurance for the company.
- the amount that you borrow falls within the limits set by the policy. Many companies will limit the amount that you can borrow, to limit the risk that the loan balance with interest does not allow the policy to go belly up.
If you can meet all of these criteria, than chances are very good that you can have a tax free check in your hands in just a couple of days! Thanks for asking!