Borrowing From Your New York Life Insurance: Is It Possible?

New York Life Insurance offers a range of permanent life insurance policies that allow you to borrow against the cash value of your policy. This includes whole life insurance and universal life insurance. The cash value of these policies can be used to cover significant expenses, such as a down payment on a home, retirement, or unforeseen emergencies. It's important to note that borrowing against your life insurance policy will reduce the available cash surrender value and possibly the life insurance benefit. New York Life also offers repayment programs to help policyholders stay on track with their premiums and avoid policy lapse.

Borrowing from New York Life Insurance: what you need to know

New York Life Insurance offers permanent life insurance policies that accumulate cash value over time. This cash value can be borrowed against to cover significant expenses, such as a down payment on a home or a child's college tuition. Here's what you need to know about borrowing from your New York Life Insurance policy:

Eligibility for Borrowing

To be eligible to borrow against your New York Life Insurance policy, you must have a permanent life insurance policy that has accumulated cash value. Term life insurance policies do not accumulate cash value and therefore cannot be borrowed against. The types of permanent life insurance policies that can be borrowed against include whole life and universal life insurance.

Building Cash Value

The cash value in your New York Life Insurance policy grows over time as you pay your premiums. A portion of the premiums goes into a fund, which accumulates and can be borrowed against. The rate at which the cash value grows depends on the type of policy you have. For example, with whole life insurance, the cash value is guaranteed to grow over time, while with universal life insurance, the cash value accumulation potential may be minimal, with the death benefit protection being the main feature.

Borrowing Process

You can borrow against the cash value of your New York Life Insurance policy by taking out a loan with the insurance company. There is no formal approval process or credit check required, as you are essentially borrowing from yourself. The loan amount will be based on the cash value of your policy, and you can typically borrow up to 90% of the cash value. The interest rates on these loans are generally lower than those of bank loans or credit cards.

Repayment

While there is no mandatory monthly payment, it is important to repay the loan in a timely manner to avoid accruing interest. If the loan is not repaid before the policyholder's death, the loan amount, including any interest owed, will be deducted from the death benefit paid to the beneficiaries. New York Life Insurance offers repayment programs to help policyholders stay on track with their loan repayments.

Impact on Death Benefit

It is important to note that borrowing against your New York Life Insurance policy will reduce the available cash surrender value and the death benefit. This means that your beneficiaries will receive a reduced payout if the loan is not repaid before your death. Therefore, carefully consider this trade-off before deciding to borrow against your policy.

Alternatives to Borrowing

Before borrowing against your New York Life Insurance policy, consider exploring other options for procuring immediate cash, such as home equity loans, personal loans, borrowing against a 401(k), or using a 0% APR credit card. Weigh the pros and cons of each option to make an informed decision based on your financial needs.

Borrowing options: how to access your cash value

If you have a New York Life Insurance policy with a cash value, there are several ways to access it. The cash value is the portion of your policy that accumulates over time and can be withdrawn or borrowed against to cover significant expenses. Here are some of the options available to you:

• Use the cash value to pay your premiums: If you are struggling to keep up with premiums but want to retain your life insurance policy, you can use the cash value to help pay premiums. This option varies depending on the type of policy. For instance, with some policies, you can use the dividends to help pay your premiums, while with others, such as universal life, the cost of your premiums comes directly out of the cash value.
• Make a partial withdrawal: Depending on your life insurance policy and its customization, you may be able to withdraw money directly from the cash value. It is important to note that early withdrawal fees may apply and impact your overall benefits.
• Borrow against the policy: You can take out a loan with the cash value of your life insurance policy as collateral. Interest will be charged on the loan, usually at a more favorable rate than you would get on the open market. If the loan isn't repaid before your passing, it will be deducted from the death benefit, resulting in your beneficiaries receiving a reduced amount. Additionally, if you surrender your policy with an outstanding loan, you may be liable for federal or state income taxes if the value of the loan plus the cash surrender value exceeds the total amount of premiums paid into the policy.
• Surrender the policy: This option involves functionally cancelling your policy, which means your life insurance coverage will end. You will generally receive most or all of the accumulated cash value, but it may be subject to surrender fees and federal income taxes. Any unpaid premiums will also be collected.
• Sell it to a third party: This is similar to surrendering your policy, as your coverage will end, and you will no longer have life insurance. The difference between surrendering and selling your policy is that the amount received when selling to a third party may vary due to commissions and fees.

It is important to carefully consider your options and consult a trusted financial professional to determine the best course of action for your specific circumstances.

Repaying your loan: interest, schedules, and consequences

If you have a loan from your New York Life Insurance policy, you can choose to repay it using cash payments to the company. This will increase both the policy's account value and the death benefit by the repayment amount.

If you don't pay the loan back before you pass away, the loan balance will be deducted from the death benefit that goes to your beneficiaries. This is the most tax-efficient way of repaying the loan, as death benefits are received tax-free.

You can also pay the loan back using 'excess' cash value. However, if the loan repayment amount is greater than the amount of the policy cost/tax basis, then this repayment method may trigger a taxable event.

New York Life does not require repayment of the loan balance according to a set schedule, but interest will continue to accrue, and the company will still make charges for policy expenses. If the loan balance grows past the policy's cash value, the policy could lapse, and you would have to make an infusion of premium money to keep it in force.

If the policy terminates, you will be liable for an income tax bill on the loan money you took out. This will be the case if the value of the outstanding loan plus your cash surrender value is more than the total amount of premiums you have paid into your policy (less certain non-taxable distributions).

You can request an in-force policy illustration annually to determine the impact of a policy loan. This should include scenarios such as repaying the policy loan in full, paying premiums and interest out of pocket, and borrowing future premiums and loan interest.

If you have a whole life policy, any policy loan interest not required to satisfy an excess loan condition, and Option to Purchase Paid-up Additions (OPP) payments that were missed, will not be included as part of the 12-Month Repayment Program.

Borrowing vs cashing in: pros, cons, and alternatives

Borrowing from your life insurance policy can be a quick and easy way to obtain money, but it's important to understand the pros and cons before making a decision. Here we outline the advantages and disadvantages of borrowing from or cashing in your life insurance policy, along with some alternative options to consider:

Borrowing from Life Insurance Policy: Pros

• Quick access to loan funds: There is no approval process, credit check, or income verification required. You can usually receive a check within a week.
• No repayment obligation: There is no required monthly payment or payback date. The loan can sit for years without any payments.
• Low-interest rates: Policy loans generally have lower interest rates compared to bank loans and do not charge high fees or closing costs.
• No income tax: Policy loans are not considered taxable income. You can borrow your cash value without owing income tax.
• Flexible usage: You can use the loan funds for anything, such as household bills, retirement, or a vacation, without having to explain your intentions to the insurance company.

Borrowing from Life Insurance Policy: Cons

• Reduced death benefit: If the loan isn't repaid before the policyholder's death, the loan balance and accrued interest will be deducted from the death benefit received by the beneficiaries.
• Interest owed: The insurance company will charge interest on the outstanding loan balance.
• Risk of losing coverage: If the loan balance exceeds the cash value, the policy could lapse and be terminated by the insurance company, resulting in a loss of insurance protection.
• Possible tax consequences: If the policy lapses before the loan is fully repaid, there may be income tax owed on the amount received above the cost basis (the sum of premiums paid).

Cashing in Life Insurance Policy: Pros

• Access to cash: Cashing in your policy can provide a lump sum of money that can be used for various purposes, such as paying off debts, investing, or boosting retirement funds.
• Reduced monthly expenses: Surrendering the policy will eliminate the need to pay premiums, reducing your monthly expenses.
• Self-insurance: The cash received from cashing in the policy can be used to fund health care expenses, long-term care costs, or other personal expenses.

Cashing in Life Insurance Policy: Cons

• Endangering family's future: Cancelling the policy removes the financial protection it provides for your loved ones in the event of your death.
• Higher premiums for new policies: If you decide to get a new policy later, you may be assessed higher premiums due to your age and changing health conditions.
• Tax implications: If the policy's cash value exceeds the amount of premiums paid, you may be taxed when selling the policy.

Alternatives to Borrowing or Cashing In:

• Decrease coverage amount: Instead of cancelling the policy, consider reducing the benefit amount to lower your premiums.
• Partial withdrawal: Whole life policies may allow you to borrow or withdraw a portion of the cash value without surrendering the entire policy.
• Utilize cash value for premium payments: You can use the accumulated cash value to fund premium payments if you're facing financial difficulties.
• Improve health to lower premiums: Making positive changes to your health may qualify you for lower premiums. Request a new medical exam to assess your eligibility.

Borrowing limits: how much you can borrow and when

Borrowing limits on your New York Life Insurance policy are determined by the cash value of your policy. The cash value of your policy is the amount of money that has accumulated in your policy over time. This value is dependent on the premiums you pay, the length of time you've held the policy, and any specific details or add-ons you've chosen.

The amount you can borrow is typically represented as a percentage of the cash value. While the exact percentage varies depending on the insurance company, you can usually borrow around 90% to 95% of your policy's cash value. For example, if your policy has a cash value of $50,000, you may be able to borrow up to $47,500.

It's important to note that borrowing against your life insurance policy will reduce the available cash surrender value and the death benefit. This means that if you pass away with an outstanding loan, the loan balance will be deducted from the death benefit that your beneficiaries receive.

Additionally, it's worth considering the potential tax implications of borrowing against your life insurance policy. While the loans are generally tax-free, if you surrender your policy with an outstanding loan, you may be liable for federal or state income taxes if the value of the loan plus the cash surrender value exceeds the total amount of premiums you've paid into the policy.

Before making any decisions, be sure to carefully review the terms and conditions of your New York Life Insurance policy and consult with a financial professional or tax advisor to understand the specific borrowing limits and potential consequences.

Frequently asked questions