Aflac Life Insurance Loan: Online Application Process

If you're looking to borrow money, you may be able to apply for a loan on your life insurance policy. This is known as a collateral assignment of life insurance. It's important to note that not all life insurance policies will allow you to do this – it depends on whether your policy has a cash value.

Aflac offers whole life insurance with a cash value component that you can borrow against. This type of loan can help cover medical expenses, mortgages, or other bills. To find out more about your options, you can speak to an Aflac agent.

Whole life insurance

Your whole life insurance rates are determined by your age, medical history, and coverage goals. These factors allow insurance companies to create a plan that suits your needs best. Once decided, the premiums are fixed throughout your plan, and the death benefit is certain. Some insurance companies allow you to make payments monthly, quarterly, or biannually.

A portion of your premiums is usually put into an investment account to grow throughout the life of the plan. When the plan ends, the accrued cash value of the plan will be paid out to the beneficiary. If you name your beneficiary as an irrevocable life insurance trust, you may lower the tax liability.

Benefits of Whole Life Insurance

There are several benefits to having a whole life insurance plan:

• Premiums are consistent, unless you want to raise the cash value of your plan.
• The death benefit is guaranteed to be paid to the beneficiary when the coverage ends.
• Your policy builds cash at a constant rate, tax-free in a secure account.
• You do not need to choose a term length – your life insurance coverage lasts your whole life.
• You may be able to access the cash value of your plan before it expires.

You are also able to tap into these savings in an emergency through a loan or partial withdrawal. This can be especially helpful if you withdraw any funds post-retirement because you’ll likely be in a lower tax bracket by then.

Borrowing against your life insurance policy

The cash value component is like a savings account that grows tax-free over time. It is typically found in whole life insurance plans and is not an option in term life insurance policies. The cash value is a portion of your life insurance payment that is put into this savings-like account.

How to borrow against your life insurance policy

To borrow against your life insurance policy, you take out a loan against the value of the death benefit within the plan. The death benefit is the portion of money that is paid to the beneficiary when the policy owner passes away. The value of the life insurance policy itself is used to guarantee that the loan will be paid back.

These loans are taken out with the life insurance company, and they often come with a simpler approval process since you technically own your life insurance plan's death benefit and cash value. The insurance company will charge interest on the loan monthly, and you can choose to pay it as it comes in or let it accrue and pay it all later.

Pros and cons of borrowing against your life insurance policy

Pros:

• Most of the time, life insurance loans are not recognized by the IRS as income, so you won't have to pay taxes on them.
• There is no formal approval process for a life insurance loan since the value of the plan is technically yours.
• Life insurance loans will not affect your credit score.
• You can receive funds quickly and easily, as there are typically no minimum income requirements or hard credit checks involved.
• You can avoid using your house or car as collateral, as your life insurance policy will serve as the collateral.
• Life insurance policy loans typically come with flexible repayment schedules.

Cons:

• If you are unable to make monthly loan payments in a timely fashion, you may lose your life insurance plan.
• If the loan is not paid back before the policy owner passes away, the beneficiary will only receive a portion of the death benefit.
• If the life insurance policy lapses, you may have to pay taxes on it since the tax structure will change.

Cashing out a whole life insurance policy

If you have a whole life insurance policy and are in need of cash, you may be able to cash it out, depending on the specifics of your policy. Whole life insurance is a type of permanent life insurance policy that offers coverage for life and allows you to build up a cash value over time. This cash value can be accessed in several ways, each with its own benefits and drawbacks. Here is a detailed guide on how to cash out a whole life insurance policy, including the pros and cons of each method.

Ways to Cash Out a Whole Life Insurance Policy:

• Borrowing from the Policy: You can take out a loan against the cash value of your whole life insurance policy. This option often has flexible repayment terms and no credit check is required. The interest rates on these loans are typically low, ranging from 5% to 8%. However, any amount owed on the loan will be deducted from the death benefit, and failure to make timely payments may result in losing your policy.
• Withdrawing Funds from the Policy: You may be able to withdraw a portion of the policy's cash value. Withdrawals up to the amount of premiums paid are usually tax-free, but withdrawals exceeding this amount may be subject to taxation.
• Surrendering the Policy: Surrendering your policy allows you to withdraw the entire cash value, but it will also terminate your coverage. This option may incur surrender charges and result in tax liabilities if the payout exceeds the premiums paid.
• Paying Policy Premiums: You can use the cash value to pay your life insurance premiums if you are facing financial difficulties.
• Selling the Policy (Life Settlement): You can sell your life insurance policy to a third party for a lump sum greater than the cash value. This option is known as a life settlement. While it can provide a larger payout than surrendering the policy, it also comes with additional fees, tax implications, and a loss of control over the death benefit.

Pros and Cons of Cashing Out a Whole Life Insurance Policy:

Pros:

• Quick access to funds without an extensive application or waiting period.
• Low-interest rates on loans compared to other borrowing options.
• No credit check or formal approval process required.
• Flexible repayment schedules.

Cons:

• Reducing or eliminating the cash value of your policy.
• Potential tax liabilities on withdrawals or surrenders that exceed the total premiums paid.
• The loan amount, if not repaid, will be deducted from the death benefit.
• The policy could lapse if the interest on the loan exceeds the cash value.
• Surrendering the policy results in the loss of coverage and a potential tax bill.

Alternatives to Cashing Out a Whole Life Insurance Policy:

• Taking out a personal loan or a home equity loan.
• Borrowing from your retirement accounts.
• Using other non-retirement investment accounts.

Important Considerations:

Before cashing out your whole life insurance policy, carefully consider your financial situation and the potential impact on your coverage and beneficiaries. Consult with a financial advisor or tax professional to understand the tax implications and explore alternative options that may better suit your needs.

Collateral assignment of life insurance

A collateral assignment of life insurance is a conditional assignment that appoints a lender as an assignee of a policy. In other words, the lender has a claim to some or all of the death benefit until the loan is repaid. The death benefit is used as collateral for a loan.

Collateral assignment is a common requirement for business loans, and lenders may require you to get a life insurance policy to be used for collateral assignment. It allows you to specify the amount of your death benefit that your lender receives if you pass away during the loan term.

• Know the requirements: Lenders generally require an active life insurance policy with cash value. This means that a term life insurance policy may not qualify. However, exact requirements vary by lender. If you need to get a new life insurance policy, research and gather quotes from several insurance companies to choose the right option for you.
• Fill out a life insurance application: Once you’ve found a policy that will meet a lender’s loan requirements, you can apply for life insurance. Check with the lender to see if the policy you’re approved for qualifies for a life insurance collateral assignment before signing the contract.
• Fill out a collateral assignment form: Once you sign your life insurance contract and pay your first premium, complete a collateral assignment form with your insurer. You’ll need to provide your lender’s contact details so your insurer can designate them as a collateral assignee while your loan is outstanding.
• Sign and submit the form: After completing the collateral assignment form, you and your lender must sign it. Your insurer may be able to provide electronic versions of the documents and e-signature capabilities to streamline the process.
• Wait for confirmation and apply for the loan: Wait for your bank to confirm that your insurer has made them the collateral assignee. Then, apply for your chosen loan and fill out any relevant life insurance policy information on the application.

Using your life insurance policy as collateral may impact your beneficiaries if you default on the loan or pass away with an outstanding balance. Either event could reduce the death benefit payout your beneficiaries receive.

Life insurance with cash value

Types of Life Insurance Policies with Cash Value

• Whole Life Insurance: Whole life insurance is a type of permanent insurance that lasts the entire life of the policyholder, with premiums being paid regularly. The cash value of whole life insurance can still grow with potential tax savings, and the death benefit is guaranteed as long as the premiums are paid (subject to limitation and exclusions). The premiums in this type of plan are usually fixed.
• Universal Life Insurance: Universal life insurance and whole life insurance have a few similarities, but universal life insurance plans allow you to change the value of premium payments, giving you more adjustability. With universal life insurance, you can scale the death benefit up or down depending on your unique circumstances. The cash value of a universal life insurance policy can be used to pay for the premiums or other expenses.
• Variable Life Insurance: Variable life insurance has greater access to investment tools, like cash value. This type of plan tends to involve more risk, as the cash value will grow or diminish depending on how the investments chosen are doing.
• Indexed Life Insurance: An indexed life insurance plan has a greater relationship with the stock market, as this is used to determine growth. While there is a certain level of risk involved in an indexed universal life insurance plan, you can typically still secure a guaranteed minimum interest rate.

Benefits of Cash Value Life Insurance

• Lifelong coverage: Life insurance with cash value is permanent coverage, meaning it lasts your entire life.
• Flexible access to funds: With cash value life insurance, you can use the funds from the cash value component while you’re still alive. Once you’ve built up enough cash value, you can enjoy flexible access when needed, whether you want to get a policy loan or make a withdrawal.
• Reasonable premiums: Although premiums for life insurance policies with cash value can be higher than term life insurance premiums, the cost for coverage may still fit your budget.

To determine whether cash value life insurance is right for you, consider your financial situation and goals. If you want to grow funds over time that you can access while you’re still alive and are willing to pay higher premiums, you may want to take advantage of a policy with cash value, such as whole life insurance.

Frequently asked questions