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What are the benefits of getting a loan against a Life Insurance policy?

What are the benefits of getting a loan against a Life Insurance policy?


What are the benefits of getting a loan against a Life Insurance policy?

Thinking of borrowing a loan against your Life Insurance policy? That sure is a good idea. There are a lot of benefits that come with borrowing against your Life Insurance policy.

  • One, there is no process of waiting for your loan to get approved or disapproved since you are borrowing this money from your own policy. When you borrow money from your own policy, you do not have to give details on how you wish to use the money.
  • Two, if you do get to a situation where you are not able to pay back the loan amount that you have taken against your policy, the Life Insurance company will simply deduct the amount from the cash value of your policy or deduct it at the time of payout when there is a death benefit to be given.
  • Three, the money borrowed against your Life Insurance policy will not affect your credit rating, unlike a credit card payment or a bank loan.


What do you mean by cash value? The cash value of a Life Insurance policy is the accumulated amount that is given to the policy owner upon cancellation of the policy.


To check if cash value applies to you, ask your insurance provider if the policy you have allows you to take a loan against it. Also, here’s something for you to keep in mind - if you do not pay back the borrowed loan, nor the interest on it, your loan interest could build up and be added to the amount you have to pay back. This should not be ignored, otherwise the interest amount could over a point of time exceed the original cash value of your policy.


I just bought a Life Insurance policy. Can I borrow against it?

You can borrow a loan from your Life Insurance policy once you have enough cash value. We recommend that you contact your financial advisor or Life Insurance provider representative to get to know the current cash value of your policy and also get to know in detail any consequences this will have on your policy as well.


How are these loans different from regular bank loans?

Loans against Life Insurance policies work very differently in comparison to regular bank loans. For starters, you will not have to pay back this loan necessarily. This is because when you borrow from your policy, what you get is on the basis of the cash value of your policy - how much your policy is worth. The amount that you borrow, unless paid back, could decrease the final death benefit value of your policy.


The very objective of investing in a Life Insurance policy is to guarantee that your loved ones have financial security for when you are not around. Before you decide to go ahead with taking a loan against your Life Insurance policy, it is highly recommended that you discuss this with your spouse and family as well to plan for any long-term and short-term risks. Also, speak to your trusted Insurance advisor; they will be happy to explain to you in detail any queries you might have and put your concerns at ease.

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