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The ABC’s of Policy Loans

Life insurance policies contain a variety of features and benefits that many insureds may not even be aware of. These can include a waiver of premium benefit that covers the premiums in case of disability or dismemberment. Policies may have an accidental death benefit, it can accrue cash value and dividends and build into a valuable asset for the future. A policy that builds cash value like whole life insurance may also have a policy loan provision. What is a policy loan, and how can it be a valuable aspect of a life insurance policy?

What Is a Policy Loan?

A policy loan uses the cash value of a life insurance policy to make cash available to the policy owner without having to “cash-in” the policy. This keeps the balance of the policy in force while making needed funds available.

Do All Policies Have this Feature?

No. Only cash value type insurance policies (like whole life or universal life) will build value that can be accessed through a policy loan.

What Can I Use a Policy Loan For?

Funds from a policy loan can be used for any purpose. They can be used to pay other debts, handle emergencies or be used for opportunities. You do not need to justify your use of a policy loan.

What Costs Are Associated With a Policy Loan?

There is usually a small interest rate associated with a policy loan from an insurance policy.

How is the Loan Paid Back?

The loan may be paid back directly through payments to the insurance company. It also may be paid out of the proceeds of the policy upon the death of the insured.

How Do I Know If a Policy Has a Loan On It?

You should receive a status report on the loan at least annually. This should show how much the original loan was and the accrued interest to date. You can also contact an insurance company and speak with an agent to request a policy status report.

II you have any questions about your life insurance policy or its benefits, contact one of our independent life insurance agents. Because we are independent, we are able to review the policies of any company. We can also quote you insurance rates from multiple insurance companies with just one phone call. Contact us and learn more about your life insurance today.

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