People may end up buying any Michigan life insurance policy for a variety of reasons. The most common is to provide financial stability to their families after death. A death in the household usually leads to a loss in overall income.
But can you take out a loan against a life insurance policy? The straightforward answer is – yes. But the more important question is – should you? Life insurance policy loans are a viable opportunity to get your hands-on quick cash. But before you decide to do so, you have to learn a thing or two about this type of loan.
A Closer Look at Permanent Life Insurance Policies in Michigan
Permanent life insurance policies are quite different than standard Michigan life insurance policies. Standard life insurance policies pay out only in one instance – if you die during the policy term. On the other hand, permanent life insurance policies, or cash value life insurance, don’t have the policy term attached to them. This means that they pay out no matter when you die.
Over time, permanent life insurance policies build up the cash value. This is because part of your premium goes into a separate account. What can you do with this cash value? You can use it to boost your life insurance policy, pay premiums, or withdraw cash. More importantly, you can leverage this cash value to borrow money from the life insurance company, thus a life insurance policy loan.
The Pros of a Life Insurance Policy Loan
Since you’re borrowing cash from the life insurance company, you don’t have to worry about a credit check. If you have built up enough cash value, the life insurance company will give you the loan with no hassle.
If you have ever asked a bank for a loan, then you must know how tedious the application process is. With a life insurance policy loan, the paperwork is minimal. All you have to do is fill out a form. Your credit report will remain intact, as cash-value loans do will not affect your credit report.
Then we have the interest rates. When compared to bank loans and credit card interest rates, a life insurance policy loan has significantly lower interest rates.
And lastly, there is no timetable for repayment involved whatsoever. You can repay the loan at your own pace and at your own convenience.
The Cons of a Life Insurance Policy Loan
Generally speaking, people take loans because they need them at that given time. A life insurance policy loan may not be available when you need it because the cash value has not accumulated high enough.
You should also consider the fact that you will be risking the reduced life insurance pay-out if the death occurs before you manage to repay the loan. You can also lose the insurance coverage if you exceed your policy cash value or fail to stick with the repayment plan.
All things considered, taking a loan against a life insurance policy is a viable option to pursue once the cash value has accumulated over time. Hopefully, you will find the information we have shared with you useful. For information about life insurance policies in Michigan, contact Melton McFadden.