The best way to borrow against a policy is to purchase the best accumulating cash value TAMRA compliant policy with the lowest policy loan cost. Keep in mind that the vast majority of cash value policies need time to accumulate enough cash value to access and that surrender charges could come into play, eroding the amount you may want to borrow.
There are several policy loan provisions in cash value policies. Here’s a quick inventory: zero net cost loans, wash loans, spread loans, direct recognition loans, participating loans. There policies loans can be fixed rate or variable with two sets of rates: current company practice and guaranteed contract.
You may not want to borrow at all if you can access withdrawals to basis without a taxable event. There are rules that govern this specific aspect of cash value access, but confirm with the life insurance company before moving forward with this idea.
You may borrow against your life insurance policy if the following criteria are met.
First be sure you have a cash value life insurance plan and not a term life plan. Cash value plans are whole life, universal life, indexed universal life and variable universal life.
If you find these are what you have locate your policy and look at the illustration pages to find the cash value available to borrow. Remember that most plans take about 5 years to accrue cash because of cost of insurance funds must be met prior to accruing.
If you find there is a cash value amount great enough to borrow contact your agent or insurance company to simply start the process. Expect to receive funds within a few short weeks.
President, Lane Independent Agency, Southern California
If you have permanent, cash value life insurance, yes you may borrow against it. Be aware that some policies will end up lapsing if you borrow too much on them, so be careful and check. If, on the other hand, you have an Equity Indexed Universal Life Policy, you should have the highest appreciation in your equity for borrowing purposes. Some, like some products sold by Premier Financial Alliance, actually do not go down at all when the stock market goes down, but only go up (with caps), as the stock market goes up. These can have he largest amount against which you can borrow, totally tax free. I highly recommend these products. See your PFA agent. Glad to help. GARY LANE. garylane@cox.net. 714 422 9616. Thanks.
President, The Firm of Steven H. Kobrin, LUTCF, 6-05 Saddle River Rd #103, Fair Lawn, NJ 07410
It’s very easy. Call up your life insurance carrier and ask them to walk you through the process.
Of course, you should cover a few bases first to make sure that:
It’s the right decision, and
You’re doing it the right way.
How do you know it’s the right decision?
You know it is the right decision if you are absolutely, positively sure your beneficiary can do with less money. This is because the amount of the outstanding loan - plus interest - are deducted from the death benefit.
If you take out a significant amount of money, that might short-change your beneficiaries. Then the whole purpose of the product would be defeated.
To avoid this problem, reconsider any other sources of a loan.
If you go ahead with the loan, reconsider other sources of cash for your beneficiaries to make up the difference.
Now: are you doing it the right way?
Have the insurance company run an illustration showing the impact on your policy of taking out cash. It’s not just a question of reducing the death benefit. It might also affect the guarantee period of your premium.
Let’s suppose you bought the policy intending to guarantee the coverage to 100.
Now suppose that taking out the loan would shorten the guarantee to age 85.
Not what you wanted, right?
You need to know this so you can design a strategy for paying back the cash. You might want to pay it back sooner than you had intended, so as to restore the original value of the of the product.
These are some of the important bases to cover when you think about taking money out of your life insurance policy.
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There are several policy loan provisions in cash value policies. Here’s a quick inventory: zero net cost loans, wash loans, spread loans, direct recognition loans, participating loans. There policies loans can be fixed rate or variable with two sets of rates: current company practice and guaranteed contract.
You may not want to borrow at all if you can access withdrawals to basis without a taxable event. There are rules that govern this specific aspect of cash value access, but confirm with the life insurance company before moving forward with this idea.
First be sure you have a cash value life insurance plan and not a term life plan. Cash value plans are whole life, universal life, indexed universal life and variable universal life.
If you find these are what you have locate your policy and look at the illustration pages to find the cash value available to borrow. Remember that most plans take about 5 years to accrue cash because of cost of insurance funds must be met prior to accruing.
If you find there is a cash value amount great enough to borrow contact your agent or insurance company to simply start the process. Expect to receive funds within a few short weeks.
Of course, you should cover a few bases first to make sure that:
It’s the right decision, and
You’re doing it the right way.
How do you know it’s the right decision?
You know it is the right decision if you are absolutely, positively sure your beneficiary can do with less money. This is because the amount of the outstanding loan - plus interest - are deducted from the death benefit.
If you take out a significant amount of money, that might short-change your beneficiaries. Then the whole purpose of the product would be defeated.
To avoid this problem, reconsider any other sources of a loan.
If you go ahead with the loan, reconsider other sources of cash for your beneficiaries to make up the difference.
Now: are you doing it the right way?
Have the insurance company run an illustration showing the impact on your policy of taking out cash. It’s not just a question of reducing the death benefit. It might also affect the guarantee period of your premium.
Let’s suppose you bought the policy intending to guarantee the coverage to 100.
Now suppose that taking out the loan would shorten the guarantee to age 85.
Not what you wanted, right?
You need to know this so you can design a strategy for paying back the cash. You might want to pay it back sooner than you had intended, so as to restore the original value of the of the product.
These are some of the important bases to cover when you think about taking money out of your life insurance policy.