If you find yourself considering taking out a personal loan or borrowing against your home equity to fund a major expense, you might want to consider borrowing from your life insurance, instead. Not all life insurance policies feature cash out value or loan policies: most term life insurance policies do not. However, whole life and universal life insurance policies almost always do.
The first step to take if you’re considering borrowing from or cashing out on your life insurance policy is to speak with your agent. He or she will explain what you can and cannot do in terms of obtaining cash. You will also need to find out how the loan or amount you cash out will affect the amount of your policy that will be payable upon your death. The amount of cash borrowed or taken via cash out will likely be subtracted from the amount of your death benefit. In some cases, insurance premiums go up as a result of borrowing or cashing out.
Another way in which you may use your life insurance policy to obtain cash is by taking out a loan against your life insurance policy from a bank or other lender. In this case, you name the lender as the beneficiary of your life insurance policy in exchange for cash. The loan becomes payable upon your death. If you feel your loved ones no longer need the financial benefit your life insurance policy will provide, borrowing from or against your policy or cashing out could be a sound financial move.