How Long Do I Have To Wait Before I Can Borrow Against My Whole Life Insurance?

Whole life and universal life insurance policies have no pre-determined expiration date if sufficient premiums are paid. The monthly premiums are higher than term, but the money paid into the policy that exceeds the cost of insurance builds a cash value account that’s part of the policy. The purpose of the cash value is to offset the rising cost of insurance as you age. Money in the cash value grows at a rate that depends on the type of policy. It usually takes at least a few years for the cash value to build to sufficient levels to take out a loan.

Potential Pitfalls:
– Each insurance company will have different rules in place, but in general, the most you can borrow against your life insurance is up to 90% of its cash value.
– You can borrow from a life insurance policy as soon as there is enough cash value built up to take a loan in the amount you need. Depending on how your policy is structured, this can take several years to accrue.
– You can borrow from permanent life insurance policies that build cash value. These would typically include whole life and universal life (UL) policies. You cannot borrow against a term policy since there is no cash value associated with it.

Policy loans do not affect your credit, and there is no approval process or credit check since you are essentially borrowing from yourself. The loan is also not recognized by the IRS as income, therefore it remains free from tax as long as the policy stays active. A policy loan reduces your available cash value and death benefit. If you pass while owing money on a life insurance loan, it will reduce the amount your beneficiaries receive.

Be sure to thoroughly consider the pros and cons of life insurance policy loans in the context of your situation before taking one out.

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