Is It Possible To Borrow Money From Life Insurance To Purchase A House?
Life insurance policies can provide a great source of money to help purchase a home. There are three ways to borrow money from a life insurance policy, which includes a loan, a partial surrender, and a full surrender.
Loan
A loan is a great option if you still want life insurance coverage. The loan has interest due, which accrues over time, and it will probably reduce your dividend payment. However, there is no term limit on the loan as long as you make the required premium and interest payments. Your death benefit will be reduced by the amount of the loan, so it’s essential to repay the loan as soon as possible.
Partial Surrender
You can make a withdrawal, which is equivalent to partially surrendering your policy. The cash value of your policy will be reduced, as will your death benefit. You will need to leave some cash in your policy, but it is usually a relatively small percentage of the total cash.
Full Surrender
If you do not need to keep the life insurance policy in force, you can surrender your policy in full. You will be able to get the total cash value in the policy, minus any surrender charges if applicable.
It’s essential to consult with your agent to understand if you are subject to any surrender charges or other additional fees or penalties. Additionally, you should consider the tax implications of each option.
If you want to use a life insurance policy to save money, consider a whole life policy. The cash value of your policy will increase, and your policy will begin to pay out dividend payments. This could help you save more or increase your dividend in subsequent years.
It’s crucial to work with your agent to structure a whole life policy that meets your specific needs. You should also consider how long you need to hold the policy before making withdrawals.
In conclusion, borrowing money from a life insurance policy is possible, and it can be a great source of funds for a down payment on a house or any other purpose. However, it’s essential to consider all the options and consult with your agent to ensure you make the right decision for your specific situation.
| Pros | Cons |
|---|---|
| Money can be used for any purpose, including buying a home | Your death benefit will be reduced by the amount of the loan |
| No term limit on the loan as long as you make the required premium and interest payments | The loan has interest due, which accrues over time |
| A withdrawal can be made if you do not intend to pay back the amount of money | The cash value of your policy will be reduced, as will your death benefit |
| The total cash value in the policy can be obtained through a full surrender | You may be subject to surrender charges or other additional fees or penalties |
| Whole life policies can help you save money and accrue a cash value | You need to hold the policy long enough for it to make sense |
| Life insurance policies can provide a great source of money to help purchase a home | It’s essential to consider all the options and consult with your agent to ensure you make the right decision |
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* Based on website quote requests, through 5/31/23.
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