Life insurance is a great way to ensure financial security for yourself and the beneficiaries. It is not necessary to avail the benefits of life insurance after you die, rather if you are amongst the lucky ones who survive through the period, you can enjoy a relaxing retirement time. It is not just a peace of mind in terms of your future, but it takes all the burden off from you in terms of getting the future secured for the family you might leave behind.
However, what happens when you need a hefty amount of money to pay off debt or fulfill another need after buying an insurance plan? Can you borrow the amount to fulfill the present need? Yes, you can!
How Can and How Much Can You Borrow from Life Insurance?
Although most people buy life insurance as a security for their future because life is unpredictable, you may end up in a serious problem that needs immediate attention. Hence, rather than saving for the future, you can use the insurance money to fulfill your present needs as well.
How can you borrow money from life insurance? Get in touch with your insurance company and discuss the options.
How much can you borrow? The sum usually consists of 90% of your insurance’s cash value that is borrowed to you for a certain period only! This is right! When you talk about borrowing money from your life insurance, you are supposed to pay it back just like any other way.
But what will happen if you do not return it? Your insurance policy will be nullified and you might even have to face a penalty for it. Moreover, the main cause of the insurance will lose its sense and your beneficiaries will not be able to benefit from it later in life.
Therefore, if you are in dire need of money and have decided to borrow from your life insurance, make sure you have a way to return it, or else, you will not be able to provide security for your or your family’s future.
Life Insurance That Allows You to Borrow Money
When you are looking at ways to borrow money from life insurance, know that not all types offer flexibility. The first category of life insurance is term life insurance policy does not come with any cash value like other types of insurance. Hence, if you have bought this one in your name, you cannot borrow money from it.
On the other hand, if you own permanent life insurance that revolves around cash value, you can easily borrow money from the insurer. However, as we mentioned earlier, the policies differ from company to company hence make sure you do your reading and research before agreeing to the terms.
Benefits of Borrowing Money from Life Insurance
This may come as a big shocker but it is much better to borrow money from your life insurance rather than relying on banks for credit or friends. Why? Here are the advantages you can enjoy from borrowing insurance from the insurer:
1. Doesn’t Affect Credit Rating
When you borrow money through a bank, it runs a thorough credit check on you before releasing the loan. If the rating is low, the chances of borrowing money significantly decrease.
Moreover, if you fail to pay back the borrowed amount to the bank within the promised time frame, it will have a huge impact on your credit score, making you ineligible for further loans anywhere. Nevertheless, so is not the case with life insurances!
You can easily borrow money from the insurer without having to worry about credentials or credit rating.
2. Policy as a Collateral
Understand it this way that when you are borrowing money from a bank as a loan, you need to offer a house or something as collateral against it. Why? So that in case you fail to return the loan, the bank can use the collateral to pay for the loss.
However, when you talk about borrowing money from life insurance, there are no collaterals involved apart from the policy itself. If you fail to pay back the borrowed amount to the insurer, the worst that would happen is that your insurance plan will lapse, not offering you or the family any benefit in the future.
Hence, when buying a life insurance policy, always do your research to understand the types and which policy offers what kind of flexibility that can help you both in the present and future.
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