Charlielor
New Member
- 8
If my life insurance has some cash value in there, I can take out a loan against that policy. What's the difference between this and just simply go out to a local bank and taking a loan?
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If you die before you pay back the policy loan, the remaining balance will be deducted from the face amount. That's what he means by paying yourself/beneficiary back.Thanks for the response but I'm a bit confused when you said "pay the money back to yourself" part. Let's say I borrow $50K with 5% interest against the policy. Is the $50K coming from my cash value, policy principle, or the insurer? If it's the insurer, why do I pay me back instead of the insurer? If it's coming from my cash value, that would mean I have less money to make more money for myself, correct? If it's from my policy's principle, does that mean the next time I pay my insurance premium, I have to increase that amount or make up?
Thanks for the response but I'm a bit confused when you said "pay the money back to yourself" part. Let's say I borrow $50K with 5% interest against the policy. Is the $50K coming from my cash value, policy principle, or the insurer? If it's the insurer, why do I pay me back instead of the insurer? If it's coming from my cash value, that would mean I have less money to make more money for myself, correct? If it's from my policy's principle, does that mean the next time I pay my insurance premium, I have to increase that amount or make up?
Let's say I borrow $50K with 5% interest against the policy. Is the $50K coming from my cash value, policy principle, or the insurer?
I have never been clear on whether policy dividends for my whole life policy are paid on cash value including the outstanding loan balance or cash value less the outstanding loan balance.
I also don't know what difference universal life would bring to that situation.
That's not always true.It would have to be on only the cash value less the outstanding loan balance.
Also not always true.Only that the cash accumulation would be a lot less.
Thanks for the comments.That's not always true.
Also not always true.
When you get a loan, the cash value is not reduced nor is the death benefit. The insurance company loans you their money and he policy values stand as collateral for the loan. If the cash value in the policy was reduced by the loan, then it would no longer grow as illustrated.The cash value, assuming you had enough cash value available.
Let's say your policy has accumulated $100,000 in cash value and you borrow $50,000 and you agree to pay it back $1000 per month.
When you get the loan the remaining cash value is reduced to $50,000 and so is the death benefit.
Each month that you make a payment on the loan, the cash value and the death benefit are replenished by the amount of the payment.
That's what is meant by paying yourself back. Basically, you took a large amount of your money out of your piggy bank and you're putting the money back in a month at a time.
There is likely a mechanism in place where you pay your premiums one way and you pay back the loan some other way.