Tips for Borrowing Against your Life Insurance

If you have a life insurance policy whether it is whole, variable or universal then you know that the policy increases in cash value because of the fact that there is an investment portion built in to the life insurance policy.  The great part is that you can borrow against your life insurance policy.

Understand Interest Accumulation

If you borrow against your life insurance policy, you will be charged interest on that loan.  If the interest is not paid, it will be added into the loan amount and then it will be compounded.  What that means for you is that you will be paying interest on the interest.  So, it is a good idea to pay the interest on the loan in order for it not to be added to the loan amount.

Understand Non-Standard Repayment Options

If you take out a loan against your life insurance policy, there will be no repayments that will be required of you.  This means that you are able to use the money for things that require your immediate attention.  Once your financial situation gets better and your budget allows, you can then start to make your loan payments.  The most important thing to remember is to at least pay the interest so it will not get rid of your cash value.

Understand Other Loan Costs

If you have a life policy that is a variable one, there may be something called an opportunity cost associated with it.  The opportunity cost is the difference between what the amount of interest your loan was getting at the time they were in the investment funds and the amount that they earn once they are transferred to a fixed interest fund.  You may be responsible for the difference in interest before the move.  On YouTube Ori Tal explains tips about life insurance and other personal finance information.

Understand Where the Money Comes From

If you have a permanent or whole life insurance policy then you can borrow up to any amount that you have as a cash value in your policy.  The amount that you request as a loan amount will be equal to the amount transferred to a more secure investment fund.  If the fund experiences any losses, this will not have a negative impact on your policy.  But if you cannot pay the loan back or you are not able to pay the interest on the loan, the amount of the payout once you are deceased will be reduced by the amount of the loan and interest.

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