Your life insurance policy is incredibly important – that is certainly true. However, what options do you have in difficult times? Selling or even borrowing against your policy can be very dangerous, but it remains yet another option in tough circumstances.
Selling Your Policy
Also important in that of borrowing against your policy, your life insurance policy will build value over time. This cash value will be held in a cash-accumulation account that is an option for you.
Can you just sell your policy outright? Yes, this is possible. It is actually quite a simple process; simply inform your insurer that you wish to choose this option, and you will receive a check in a reasonable amount of time. You will receive the amount present in the account (considerably less that you have paid over time, of course).
In what situations could you consider a possibility like this? If you are struggling financially and have the confidence that you’ll get another policy, perhaps it is something to consider. Of course, you won’t have life insurance, which equals a graver risk; and you won’t get the rates that you secured via the original policy.
Borrowing Against Your Policy
So, you have $10,000 in the account on your policy. You don’t want to sell it, but you need some money – and quick.
You should be able to take out a loan on the amount of the account, minus interest. A loan on your life insurance has some rather convenient aspects to it, as you won’t have to make payments as present in a normal loan (it is your money, basically). Also, the loan may not be taxable – although there are situations that can complicate matters. Speak to your tax professional for the details on your situation.
The bad part? You can subtract the amount you are loaned away from your death benefit (i.e. $100,000 becomes $90,000 from the previous example). Also, your policy could lapse if the premiums are overtaken – and that could mean taxes on borrowed interest. That is not a pleasant situation.
Evaluating Your Options
It’s not exactly best to start looking at your family’s financial support source in the event you die, in difficult times. Try to save these options for when it is truly necessary, as some trouble could come from either of these choices.
It can work, however. A payment-free loan with a committed payback plan could be the solution you need. If you’re young, you could get away with getting a better policy in a year or two, using the cash for present financial stressors.
Speak with a trusted financial advisor if you are considering such means. You would do well to approach the tax implications that these options could have as well.
Overall, you should be aware that there is potential and financial flexibility in your life insurance policy. It’s not something that should be a source of creativity with, though it could offer some interesting choices when you need them the most.
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