If you have a whole life insurance policy, or if you’re interested in getting one, you may be interested in the cash value component of the policy. You may also be wondering at what point you’ll be able to borrow against the cash value of a whole life insurance policy.
First, we’ll go over a few basics of cash value whole life insurance.
Whole Life Insurance
Like its name implies, whole life insurance is a type of permanent life insurance that provides coverage for the insured’s whole life (as long as premiums are paid on time).
In addition to a death benefit, permanent life insurance policies like whole life usually have a cash value component.
For life insurance policies that have a cash value component, when you pay your premium, a portion of that premium will go toward the cost of insuring you and a portion will go toward the cash value of the policy. Over time, the cash value builds, and, according to Forbes, “a cash value feature in life insurance typically earns interest or other investment gains and grows tax-deferred.”1
When Can I Borrow Against My Whole Life Insurance Policy?
Forbes tells us that with whole life insurance, cash value accumulates at a minimum guaranteed rate. There are some term life policies that have a guaranteed cash value amount as well.
When you can borrow against your whole life insurance policy’s cash value depends on the policy. Some policies accrue cash value quicker than others.
The policy terms will advise you when you can borrow against the policy. Refer to the cash value chart on the policy print.
Factors to Consider
It’s important to note that when you borrow against the cash value of your whole life insurance policy, the loan will accrue interest until the total amount is paid back. The benefit amount typically decreases if the loan is not repaid. Note that if the balance of the loan exceeds the total cash value it could lapse or cancel the policy.
Be sure to fully understand the benefits and limitations of any life insurance policy you purchase. Know the terms and conditions for borrowing against a life insurance policy’s cash value.
In addition to taking out a loan, you have several options to access the cash value of a whole life insurance policy. Explore all options before deciding to take out a loan against your policy’s cash value.
If you need guidance about accessing the cash value of your whole life insurance policy, contact a financial advisor. If you have questions about cash value whole life insurance, contact a licensed insurance agent.
- Forbes, What to Know About Cash Value Life Insurance, 2020
Categories: Life Insurance, Whole Life Insurance, Insurance