If you have a life insurance policy, you most likely selected the policy for peace of mind – to know you're providing long-lasting protection for your family and loved ones. What isn't widely known is that some, but not all, life insurance policies allow you to borrow against the cash value. This is called Insurance Lending. With certain policies, you can access funds for things like school tuition, home repairs, weddings, emergencies and more through an Insurance Line of Credit.
Let's explore what an Insurance Line of Credit is, how it works, and the providers to look for.
What is an Insurance Line of Credit?
First and foremost, it’s important to note that not every type of life insurance policy permits insurance lending, such as Term Life Insurance and Variable Life Insurance. Usually, the ones that do require higher monthly premiums accrue cash value over time. Once your policy has a high enough cash value, you may be eligible to take out a loan to pay for things other than death benefits. Typically, these types of policies fall under one of two classifications:
- Whole Life Insurance
- Universal Life Insurance
Both are types of investments that earn interest. And both may be utilized to provide you with extra cash in the event of an emergency or other unexpected life situation.
Whole Life Insurance
Whole Life Insurance covers you across your entire life – hence the name, Whole Life Insurance. Unlike Term Life Insurance, which provides coverage for a set period and accrues no cash value, Whole Life Insurance is another type of financial investment. You'll pay fixed monthly premiums that go into an account and earn a small percentage of interest. Eventually, when it has accrued enough value, you can borrow against it. Whole Life Insurance is almost always a more expensive option because you're paying for the ability to take out loans from it.
Universal Life Insurance
Universal Life Insurance is similar to Whole Life Insurance, but it's a bit more flexible. With Universal Life Insurance, you can modify the cost of your monthly premiums and your death benefits at will and it has both a cost of insurance (COI) element and a cash value element. It's important to note that some Universal Life Insurance policies are tied to the stock market and will fluctuate based on the performance of the market.
What are the Benefits to Obtaining a Loan Through Insurance Lending?
Insurance Lending is a popular method of obtaining a loan because there is no prequalification involved. Since you're borrowing against your own money, the bank assesses it at no risk. This type of loan is usually less expensive, as well, because it involves no origination fee and usually offers a lower interest rate. Other benefits may include:
- The ability to combine several policies into collateral for a single line of credit
- The ability to make monthly, interest-only payments
- The possibility of tax-deductible interest
- The ability to increase the line of credit when cash value increases
- Flexible repayment methods that include autopay, a check, wire transfer, and ACH transfer
If you're interested in learning more about Insurance Lending, or if you'd like more information on borrowing against a policy you already own, fill out this form and a member of our Insurance Lending Team will contact you. If you’re ready to apply, fill out an application to get started today.
At Lakeland Bank, we're here to help find lending solutions that work for you. Stop by one of our branches or call to schedule a consultation to learn more about the many advantages of Insurance Lending. This is a great solution when you need funds fast. And, if you use it responsibly, this type of loan will help you afford the things you need, including the costs of college, home repairs, or unanticipated expenses.