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subject: Advantages Of Borrowing Against Your Life Insurance Policy [print this page]


Advantages Of Borrowing Against Your Life Insurance Policy

When you need to borrow money, you have many options, including credit cards, personal loans and home equity loans. If you have a life insurance policy that accrues a cash value, you also may be able to borrow against that value. Doing so has several advantages.

One advantage to borrowing against a life insurance policy is a reasonable interest rate. While the rate won't be as low as what you could get on a home equity loan, it will likely be much lower than the rate on a credit card, personal loan or payday loan.

Another advantage to borrowing from a life insurance policy is that you are basically borrowing from yourself. The cash value of the policy is your money, which you could cash out if you wish. As long as you pay the loan back, the money will be there for you to use at another time or for your heirs when you die.

Borrowing from yourself leads to another advantage to of taking a loan from an insurance policy: the inability to default. Because the money is yours, if you don't pay it back, you simply have less cash in the account to tap while you are alive or there will be less there for your heirs when you die. You don't have to worry about harming your credit score or being hounded by creditors if you fail to pay back the loan.

Borrowing against your life insurance can also prevent you from taking out more money than you need, which can be a temptation with other loans. Since you are basically limited to borrowing the amount of cash value you have in the policy, you are less likely to take out an exorbitant loan and then use some of the money on another purpose.

A further advantage of borrowing from a life insurance policy is that the loan usually doesn't show up on your credit report as a consumer loan. This means it won't affect your debt-to-available-credit ratio, which counts for a large portion of your credit score, nor will it be counted as a debt for the purpose of figuring how much of a mortgage you can afford.

To be able to take a loan from an insurance policy, you need to make sure you are getting the right type of policy when getting life insurance quotes. It needs to be a whole life policy or cash value policy or something similar. You can get life insurance quotes online or through an agent to ensure you are getting the best deal.

by: Shaun Greer




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