Founder, Abrams Insurance Solutions, Inc., San Diego, CA
Life insurance policies that are designed for cash accumulation build up a reserve of cash that you can borrow from at any time for any purpose. You can't borrow 100% of the cash in your policy, but usually up to 90 or 95% depending on several variables.
You can take a fixed loan from your policy which means the cash comes out of your account and you stop earning interest on this money. The charge for a fixed loan is usually very low (0 -2%, depending on policy).
The second type of loan is called a variable loan or participating loan. With this loan, the money comes out of the insurance company's general account, so your money remains in your account earning compound interest. The interest rate for this type of loan is higher - usually 5% or more or a variable rate. The amazing feature of this loan is that you can borrow money at 5% (for example), but your money may be in your account earning 7% or more, creating a positive arbitrage.
Borrowing against your life insurance policy can be an excellent option, but you should discuss the pros and cons of this strategy with a knowledgeable advisor.
Agency Owner, The Thomas G Sheehan Agency, 27 Glen Road Sandy Hook, CT 06482
In a Permanent Life INsurance plan, there is usually an elemental benefit that results in a tax deferred accumulation of cash internally in the contract. It is this "cash value" that may be available for you to tap either as a withdrawal or loan depending upon the terms and conditions of your policy. Talk to your Insurance Professional about those terms and conditions and about the various options available to you. Be sure to discuss the pros and cons as well. For example, Understand the loan provisions fully. Insurance Companies charge an interest rate on the loaned money and, though there is no specific requirement that you pay it back, if you don't, the outstanding amount of loan and accumulated interest is usually subtracted from the proceeds of your policy when paid to your beneficiary at the time of your death.
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You can take a fixed loan from your policy which means the cash comes out of your account and you stop earning interest on this money. The charge for a fixed loan is usually very low (0 -2%, depending on policy).
The second type of loan is called a variable loan or participating loan. With this loan, the money comes out of the insurance company's general account, so your money remains in your account earning compound interest. The interest rate for this type of loan is higher - usually 5% or more or a variable rate. The amazing feature of this loan is that you can borrow money at 5% (for example), but your money may be in your account earning 7% or more, creating a positive arbitrage.
Borrowing against your life insurance policy can be an excellent option, but you should discuss the pros and cons of this strategy with a knowledgeable advisor.