What You Need to Know About Borrowing from a Life Insurance Policy

Borrowing from Life Insurance Robert Taurosa

When life insurance policies were first introduced, they were meant to cushion the beneficiary from financial worry in the event of the insured’s death. However, as time passed by, life insurance incorporated savings and investment into the package. Policies such as whole life and universal life insurance provide cash value back to the insured.

What You Need to Know

You cannot ask for a loan if you have a term life insurance policy. This is because the insurer does not offer any additional benefits. A term policy is only meant to benefit your beneficiaries in case you die before the contract expires.

If your policy has a cash value, think before you ask for the loan. Find out how the loan will affect your policy. Typically, when you borrow on your life insurance policy, the cash value acts as collateral. If you fail to pay back the loan, the insurer can take the cash value. However, you run the risk of losing your entire policy if the interest payments plus the actual loan amount is more than the cash value.

Before you borrow on your life insurance policy, the cash value has to be substantial. Usually, you build this value through years of saving. Talk to a qualified financial planner about how you can build up this cash value.

When asking for the loan, the insurance company will give you a form to fill. Watch out for hidden costs in the form. For example, is there an ‘opportunity cost‘ that you may have to pay? Find out if you can afford to pay the interest payments. Make sure that the loan and interest repayments won’t affect the death benefit portion of your policy.

Borrowing on your life insurance policy is much easier than borrowing from the bank. You don’t have to go through a lengthy application process. You ask, and if the cash value is sufficient, you get your loan.  

Before you borrow on your life insurance, make sure that you have the right policy. A term life policy does not allow you to borrow while a whole life policy will enable you to do so. Then, talk to a financial planner to see how the loan will affect policy benefits.

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What You Need to Know About Borrowing from a Life Insurance Policy

Should You Purchase Supplemental Life Insurance at Work?

Supplemental Life Insurance Robert Taurosa

Supplemental life insurance is an extra life insurance policy. The employer will offer this policy as a benefit for the employee. You should purchase supplemental insurance at work if the policy meets your needs. Here are a few reasons why the employee buys this policy at work. The employee can afford the policy. The employee has a family. The employee can keep the policy. Use the following guidelines to help you make an informed buying decision about supplemental life insurance.

Affordable Payments

First, an employee will most likely buy supplemental insurance because it is affordable. Insurance companies will offer lower rates to a group of employees. This is called group life insurance. For example, an employee making $50,000 annually may receive $50,000 of life insurance at no cost. The employer will pay for the policy. Then, the employee may have the option to buy more coverage at a much lower rate. The options can turn the $50,000 policy into a $500,000 policy. A $500,000 policy will fill the gaps and help the family when the employee die.

Provide for Family

Next, the employee will purchase supplemental life insurance to provide for the family. If you get a supplemental policy from work, try to get a guaranteed renewable policy. This is the best term policy. When the employee is sick and cannot work, the insurance company has to honor the contract as long as the employee pay the monthly payment. The family can receive the $500,000 death benefit to pay medical expenses, funeral expenses, credit cards, mortgage payments, college costs, taxes and much more. A low-cost life insurance supplemental policy can help the family.

Keep the Policy

Then, the employee purchases supplemental insurance to keep the policy for life. When buying this policy, it is essential to think about making payments for many years. Buy the policy at work that you can keep for the rest of your life. The objective is to keep the policy enforced and to keep expenses as low as possible. Find out if the policy is portable before you sign the contract. Find out if the policy will also cover you and your family.

Finally, this information is not financial advice. It is written only to inform the readers.

Should You Purchase Supplemental Life Insurance at Work?

Life Insurance Vs. Health Insurance

I’ve said this before and I’ll say it again: Life insurance is complex. There are so many technical terms and so much information that it is incredibly easy to misunderstand, forget or even dislike the process. To make matters worse, life insurance is not the only type of insurance out there. There’s car insurance, homeowner’s insurance, travel insurance, general insurance and even pet insurance. However, the most common type of insurance that seems to get mixed up with life insurance is health insurance, two very different types of insurance. And, in everyone’s best interests, I figured that I would go through and give a brief overview of the differences between the two types.

 

Life Insurance

While both types of insurance are equally important, they are important during different times of your life. Firstly, let’s talk about life insurance. Life insurance is the type of insurance that you would need after you die. You may be asking yourself, “Why would I need insurance for when I die? It won’t matter to me, I’ll be long gone.” And while that may seem like a valid argument at first, you will quickly realize that life insurance is much more important than you’d think.

 

Imagine that you have a child that is dependent on you either due to their age or a disability, or you have a parent or a significant other who relies on you and your income. Now imagine if one day you were to unexpectedly pass away. Your dependents would be thrown for a loop because they would have suddenly lost their income. For some of you, this is a reality. And this is exactly why life insurance exists. By owning a policy, you are ensuring that, upon your passing, your family or dependents would receive monetary compensation so that they may have, at the very least, peace of mind in terms of money.

 

Health Insurance

Now that I’ve explained life insurance, health insurance should be easier to explain. Where life insurance is necessary for after your death, health insurance is necessary during your life. In essence, health insurance covers a policyholder in the event that he or she falls ill and requires minor or major surgery.

 

For example, let’s say you suddenly have a heart attack and require surgery. The average price for bypass surgery is $117,000. Most people do not have that amount of money lying around. Health insurance will kick in to cover the majority of that cost, leaving you to pay a much more feasible amount of the bill.

 

So, in short, life insurance covers your dependents upon your death, whereas health insurance covers the cost of your medical bills while you are alive. It is of the utmost importance that you have both types of policies. Make sure to get out there, ask an insurance agent about your options and get yourself covered!

Life Insurance Vs. Health Insurance