Life insurance may offer more than a payment at the time of death. For many people, it can provide funds throughout their lifetime. Imagine having an account tucked away. You only need to borrow from it in case of an emergency. Yet, throughout the time you own it, it is building value. One day, it could help your loved ones manage their expenses.
Life insurance can do this. However, not all policies offer this benefit. Take a closer look at this type of coverage.
What Types of Life Insurance Let You Borrow from Them?
If you have term life insurance, you are unlikely to have the ability to borrow funds. These policies offer a lower cost and typically do not build value over time. Rather, they offer a set dollar amount paid at the time of death. Permanent and whole life insurance are a bit different. These policies tend to have higher premiums. However, many build value over time.
Here's how it works. A portion of your premium covers the death benefit of your life insurance policy. The insurance company then invests the rest of the premium. That investment is like a savings account, earning interest for you. If the investment does well, your interest grows. Over time, you can borrow from the funds earned through the interest.
How Are Taxes Applied?
These investment accounts work much like a savings account. The value grows tax free. You do not have to pay taxes on the amount invested or earned with this type of account. Check with your tax professional to learn more about your tax implications.
When Can You Borrow from These Accounts?
Generally, you can borrow from these accounts when the investment grows. Keep in mind this is not a loan. You do not pay the money back. Some accounts allow you to reinvest the funds. Others do not. Still, borrowing like this is often more affordable than using a credit card to make a purchase. You are not borrowing against the death benefit, either. You can only borrow from the amount the investment portion of your premiums earns. This can be tricky in some situations.
If you need to borrow from a life insurance policy, speak to your agent at 888.512.8878 about your options. You may find that doing this in an emergency situation is helpful. Otherwise, letting the funds grow may help you grow your investment longer.
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