Metlife Insurance: Borrowing From Your Own Policy?

Life insurance is a way to ensure your loved ones are taken care of financially when you pass away. MetLife offers permanent life insurance policies that accumulate cash value over time, which can generally be accessed via loans or withdrawals. This type of plan is typically portable, so coverage can continue if employment terminates. Borrowing against your life insurance policy is a simple way to get money on short notice with few restrictions. There are no loan requirements or qualifications other than the cash value amount available, and the funds can be used for any purpose. However, if you default on paying the interest on the loan, you could lose your policy and its cash value and end up with a big tax bill.

Borrowing from a MetLife life insurance policy is straightforward

To find out if your policy has a value to borrow against, visit MetOnline or call the number on your latest correspondence. You can also request a loan by filling out a form from the insurer, which can be found on their website or by calling their customer service line. The process is simple and generally only requires you to prove your identity. The money will be deposited into your account, often within a few days.

There are no loan requirements or qualifications other than the cash value amount available. The funds can be used for any purpose and can be paid back at any time. Additionally, life insurance policy loans have relatively low-interest rates, typically ranging from 6% to 8%. It is important to note that loans will decrease the cash surrender value and death benefit of the policy and will accrue interest over time. While you are not required to repay the loan principal out of pocket, it is recommended to pay at least the annual loan interest to avoid additional interest charges.

There are no loan requirements or qualifications

Borrowing from a MetLife life insurance policy is a straightforward process. There are no loan requirements or qualifications, which means that there are no qualifiers for a policy loan. Unlike other loans, you don't need to undergo a credit check, provide proof of income, or qualify in any way. This makes life insurance collateral loans a great solution if you need money quickly, such as for an emergency medical expense. They can also be used as a stopgap if you're applying for a loan elsewhere and are awaiting approval.

To take out a loan from your MetLife life insurance policy, simply visit MetOnline or call the number on your latest correspondence to find out if your policy has a value that you can borrow against. If you decide to take a loan from your policy, your policy's cash surrender and death benefit values will be reduced by the amount of the loan and any unpaid interest. You will be billed for your loan interest annually, and if it is not paid, it will be added to the loan principal and incur additional interest charges.

While you are not required to repay the loan principal out of pocket, it is recommended that you pay at least the annual loan interest. The amount of the loan, including accrued unpaid interest, will be automatically deducted from any policy surrender value or death benefit at the time of payment. In the event that the cash value is not sufficient to cover the policy loan balance, any surrender charge, and the monthly deductions for the policy month, the policy will lapse without value unless payment of the required amount is made by the end of the grace period.

Funds can be used for any purpose and paid back at any time

Borrowing from your life insurance policy is a convenient way to access cash. You can borrow from your MetLife life insurance policy at any time, provided there is an available loan value within the policy or attached riders. The funds can be used for any purpose and can be paid back at any time. However, it is important to note that loans will decrease the cash surrender value and death benefit of the policy and will accrue interest.

When you take out a loan against your MetLife life insurance policy, you are not directly removing money from the cash value of your account. Instead, you are taking out a loan from the insurer and using the cash value as collateral. This allows the cash value to remain within the life insurance policy and continue accumulating interest.

There are no specific loan requirements or qualifications for borrowing against your MetLife life insurance policy. The only condition is that there must be sufficient cash value available to cover the loan amount. The maximum policy loan amount is typically at least 90% of the cash value, with no minimum.

The process of taking out a loan on your MetLife life insurance policy is straightforward. You will need to fill out a form from the insurer, and the funds will be deposited into your account, usually within a few days. In some cases, you may need to confirm your identity, sign a confirmation document, or provide a notarized confirmation before receiving the loan.

While you are not required to repay the loan principal out of pocket, it is recommended that you pay at least the annual loan interest to avoid additional interest charges. The loan amount, including accrued unpaid interest, will be automatically deducted from any policy surrender value or death benefit at the time of payment.

It is important to carefully consider the risks associated with borrowing against your life insurance policy. If you default on paying the interest on the loan, you could lose your policy and its cash value, and you may also face a significant tax bill if the outstanding loan exceeds the amount you have paid in premiums.

Interest rates are relatively low

Low interest rates impact permanent life insurance policies such as universal life or whole life that depend on interest rates or dividends set by the company. Universal life insurance, also known as UL insurance, is a form of life insurance that offers flexible premiums, death benefits, and the potential for tax-deferred cash value buildup within the policy. The policy is typically designed to last your entire life or through life expectancy, and this design heavily depends on the interest rate (designated by the insurance company) to project a premium that'll keep the policy from terminating. If the premium is projected using a high-interest rate and the rate drops, the policy could be in danger of terminating over time.

Similarly, whole life policies purchased during periods of higher dividend crediting rates may be underperforming relative to policyholder expectations due to continued dividend decreases over time. It's important to review all life insurance policies at least every few years, paying special attention to the as-sold interest rate/dividend versus the current interest rates/dividends. This review should include a current projection of the policy to see how long it's projected to last at the current premium and interest rate.

If the policy is projected to terminate prematurely, there are a few options besides increasing the premium. One option is to decrease the death benefit to keep the policy going to maturity or beyond life expectancy. If you are in good health, you may also have the option to switch to a new policy that performs better. Some policies also offer the option to convert or exchange to a paid-up reduced death benefit with no further premiums, which is more common for whole life policies.

Another option is to sell the policy and try to get a decent lump sum in excess of the cash value through a life settlement. Alternatively, you can cancel the policy and obtain any remaining surrender value.

Low-interest rates have caused insurance companies to reduce benefits and raise costs. In the last several years, insurers have scaled back the benefits and features of their policies by raising costs, lowering guarantees, imposing new restrictions, or eliminating them entirely.

There are potential tax consequences

Yes, you can borrow from your MetLife life insurance policy. Borrowing against the cash value of a permanent life insurance policy is a straightforward process with minimal requirements. However, it's important to understand the potential tax consequences associated with such loans. Here are four to six paragraphs elaborating on the tax implications:

When you take out a loan against your MetLife life insurance policy, it generally doesn't result in any immediate tax liability. The loan amount is not considered taxable income when received. However, if the policy matures, is surrendered, or terminated (other than as a death benefit payment), the loan amount, including any unpaid interest, is treated as income to the policyowner. This means that if the total loan amount and interest exceed the cost basis of the policy (the amount of premiums paid minus any previous nontaxable distributions), there will be a taxable gain. This taxable gain must be reported to the IRS by MetLife, and you will be responsible for paying taxes on it.

The tax consequences can be significant, especially if the loan amount is substantial or if the policy generates high earnings. It's important to carefully consider the potential tax implications before taking out a loan against your life insurance policy, as the additional tax liability could reduce the overall benefit of the loan. In some cases, the tax consequences may outweigh the benefits of accessing the cash value of your policy.

Additionally, if you default on paying the interest on the loan, you could lose your policy and its cash value. This would trigger a taxable event, and you would be responsible for paying taxes on the outstanding loan amount that exceeds your cost basis. Therefore, it's crucial to stay on top of your loan payments and monitor the size of the loan relative to the cash value of your policy.

Moreover, while the loan itself is not taxable, any withdrawals you make from your policy may have tax implications. Withdrawals up to the cost basis of the policy are generally not taxable, but withdrawals that exceed the cost basis may result in a taxable gain. It's important to understand the difference between loans and withdrawals and the associated tax consequences of each. Consult a tax professional or financial advisor to understand how these rules apply to your specific situation.

Furthermore, the tax consequences of borrowing from your MetLife life insurance policy can vary depending on the type of policy you have. For example, with a Universal Life or Variable Universal Life policy, the cash value of the policy accumulates tax-deferred. However, if you take out a loan or make withdrawals, you may incur adverse tax consequences. Similarly, with a Whole Life policy, any dividends received may be taxable, and loans or withdrawals can also trigger tax implications. It's important to carefully review the terms of your specific policy and consult a tax advisor to understand the potential tax consequences.

Lastly, it's worth noting that while MetLife will report any taxable gains to the IRS, it's ultimately your responsibility to ensure that you comply with tax laws and accurately report any taxable income or gains. Failure to do so could result in penalties and interest charges from the IRS. Therefore, always consult a qualified tax advisor to ensure you understand the tax implications of any actions related to your life insurance policy.

Frequently asked questions