Each company is different. Most will specify exactly what the loan value of your policy is. You can check on your last annual statement or, if you want up to date information, the company can give you a current statement. Most times, the loan value is less than the cash value.
The other thing you must be aware of is that taking loans does have some consequences. First, you won't be earning as much return on the cash value. There is an interest rate within the policy that will erode the cash value if you don't pay it back. Secondly, any outstanding loans will be subtracted from the death benefit.
So, be careful about taking a loan from your policy. I know there are strategies that use the cash value in a life insurance policy to finance other purchases and, if done properly, can be a good thing. Just be sure you're doing it in the correct way and be aware of the consequences before you take the loan. Talk it over with your agent so you know exactly how you'll be impacted. That's why it's so important to have an agent that you know and trust.
Great question! The answer will depend on your policy, and the amount of cash value in the policy. You obviously cannot borrow more than has accumulated , and often the company will set limits on the amount, to help prevent you from capsizing the policy and ending it. There is also interest due on the borrowed amount, so be careful. If you would like more information, please contact me, I'd be happy to help. Thanks for asking!
Co-Founder, TermInsuranceBrokers.com, Goldenzweig Financial Group, Las Vegas, Nevada
When borrowing from a life insurance policy, you're borrowing monies from its cash value - this is only available on permanent programs (cash value doesn't build inside term insurance policies). You can only borrow up to the amount available in the cash value - this figure typically goes up over time. Review your annual statement or call your agent/the carrier to find out the current cash value available inside the policy.
Keep in mind, when you borrow from your policy's cash value, you are in effect creating a loan because you are expected to pay back the borrowed amount - and with any loan, there is an interest rate attached. The longer it's kept out, the more interest that is charged. If the insured dies with an outstanding loan against the policy, the loan amount plus any interest is subtracted from the death benefit and the difference is given to the beneficiary.
President, Lane Independent Agency, Southern California
The answer how much you can borrow depends on who you choose as our life insurance company and how long you have had your policy, along with the type of policy you buy. In order to borrow against your policy, it must not be a term policy, but only a permanent policy. Permanent policies include Equity Indexed Universal Life, Universal Life, along with Whole Life. I personally prefer Equity Indexed Whole Life polities because they tend to build up the highest amounts of Cash Value. It is that Cash Value against which you are allowed to borrow. The percentage of Cash Value you can borrow varies from company to company. With life insurance sold by Premier Financial Alliance, and its flagship carrier, 167 year old National Life Group, you can borrow an extremely high percentage of your cash value, frequently around 90%. This allows you to keep your policy open and in force. You even earn income on the money borrowed while you have it. You do not have to ever repay the money and you then keep it tax free, so long as the policy is open. Do not close a permanent policy after borrowing against it, as then the money you take becomes taxable. Leave a death benefit for your beneficiary and you help them and you. Thank you. GARY LANE. Premier Financial Alliance. 714 422 9616. garylane@cox.net.
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The other thing you must be aware of is that taking loans does have some consequences. First, you won't be earning as much return on the cash value. There is an interest rate within the policy that will erode the cash value if you don't pay it back. Secondly, any outstanding loans will be subtracted from the death benefit.
So, be careful about taking a loan from your policy. I know there are strategies that use the cash value in a life insurance policy to finance other purchases and, if done properly, can be a good thing. Just be sure you're doing it in the correct way and be aware of the consequences before you take the loan. Talk it over with your agent so you know exactly how you'll be impacted. That's why it's so important to have an agent that you know and trust.
Keep in mind, when you borrow from your policy's cash value, you are in effect creating a loan because you are expected to pay back the borrowed amount - and with any loan, there is an interest rate attached. The longer it's kept out, the more interest that is charged. If the insured dies with an outstanding loan against the policy, the loan amount plus any interest is subtracted from the death benefit and the difference is given to the beneficiary.