Use the Cash Value of Your Life Insurance Policy

Life Insurance

You can borrow against Life Insurance – Tax Free!

What is Cash Value?

Understanding cash value is vital to making an informed, effective decision. Cash value is a portion of your policy’s death benefit which has become liquid. It grows at different rates for different insurers. This is referred to as the rate of accumulation – the ROA. Universal life policies offer different options for how excess premium is invested, which will then result in a different rate of return for that policy. if you borrow against it and die while the loan is outstanding, the death benefit is reduced by the amount of the outstanding loan The risk comes from the fact that it is a part of your death benefit. This means that if you borrow against it and die while the loan is outstanding, the death benefit is reduced by the amount of the outstanding loan. So before you borrow against your accumulated cash value, one of the questions you should ask yourself is this: If I die the day after I borrow the money, will there be enough death benefit left to fulfill my reason for buying the insurance in the first place?

Ok, I get it, you have been paying on your Life Insurance Policy since your Dad told you you needed it. Now you can sure use the money for retirement. What do you do?

While it may seem like your money, its not. At least not yet, so you have to borrow it from the insurance company. You may want to retire, but heck, you’re not dead yet – and life insurance policies were designed to pay out when you die. But the news is all good:

The insurance company will loan you the money at a very attractive rate, and – here is the kicker – you don’t have to ever pay it back! The amount you borrowed, plus accrued interest will be deducted from your death benefits. So keep in mind – it may not be there when you DO die!

There is also a big tax advantage of borrowing against your life insurance policy. When you retire and draw amounts from your cash value, this money is income tax free (as long as you don’t withdraw more than the sum of the premiums you paid in). The tax benefit ends when you die.

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