When an insurance policy has a cash value, the policy holder can borrow quick money at a very low-interest rate against that certain policy.

Life insurance policies are typically designed to lend policy holders quick cash when they want to avail of this service. The types of life insurance like ‘Whole Life’, ‘Universal Life’ and ‘Variable Life’ are usually the ones where you can borrow. How do you know if you can borrow from your policy or if you need to consider other options?

There Should Be Enough Money

There would not be enough money accumulated within the first 5 to 10 years of your policy unless you have put extra funds on it for the purpose of accumulating cash faster. And, if there is adequate money that can meet your need for cash, you should first consider if you should really borrow from your policy, surrender your policy for the cash or borrow somewhere other than your policy.

Don’t Surrender Your Policy For Cash

If you have other options it is not advisable to surrender your policy for cash because buying a new one will be more expensive. It is also possible that you have developed some health issues over the years that would make it difficult to get insured. There are other sources that can lend you money including banks, credit cards, or home equity loans. But, you should analyze the interest rates and if you can afford the payments for them while paying for your current policy.

Policies Offer Lower Interest Rates

Borrowed money from Life insurance policies have lower interest rates compared to other sources. Your policy is not stripped off money if you borrow from your policy. The money is still there to earn interest and you are not required to pay the principal with interest on a definite date. The insurance company will send you the annual statement of interest on your loan that you can choose to pay or add to the principal loan amount.

Pay or Don’t Pay

You can choose to pay or not to pay the loan you made against your life insurance policy. It sounds good doesn’t it? However, your policy’s cash value and loan plus interest amount might get close to each other. Your policy may not have money from your payments and interest earned to pay the cost of insurance. At this point, you have to pay higher amount of premiums to keep the policy in force or your policy would be cancelled.