Borrowing Against Globe Life Insurance: What You Need To Know

Life insurance is a valuable financial tool that provides peace of mind and security for individuals and their loved ones. While the primary purpose of life insurance is to offer financial protection in the event of an insured person's death, some policies also offer additional benefits during the policyholder's lifetime. One such benefit is the option to borrow against the policy's cash value. Globe Life Insurance, a prominent insurance provider, offers whole life insurance policies that include a cash value component. This feature allows policyholders to borrow against their policy, providing them with financial flexibility during their lifetime. However, it is important to carefully consider the advantages and disadvantages of borrowing against a life insurance policy, as it can impact the death benefit and the overall coverage. In this article, we will explore the possibilities and implications of borrowing against a Globe Life Insurance policy and provide valuable insights for individuals considering this option.

Borrowing from the cash value

Globe Life Insurance offers permanent whole life and universal life insurance policies that accrue cash value over time. This cash value can be borrowed against, but there are some important considerations to keep in mind. Firstly, not all life insurance policies build cash value; term life insurance policies, for example, only offer a death benefit without any cash value component. Secondly, it takes time to build up the cash value in a policy, and there is usually a minimum cash value requirement that must be met before a loan can be taken out.

Once the minimum cash value requirement is met, policyholders can borrow up to the full amount they have accumulated. Borrowing against the cash value of a life insurance policy can provide several benefits. There is no lengthy application process, and the policy loan will not appear on credit reports. Additionally, policy loans typically have lower interest rates and flexible repayment terms. Policyholders can even choose not to repay the loan, and instead, have the amount due deducted from the beneficiary's benefit.

However, there are also risks associated with borrowing against the cash value of a life insurance policy. If the loan is not repaid, the death benefit for the beneficiary may be reduced. Furthermore, if the interest and unpaid loan amount total more than the remaining cash value, the policy could be lost. It is important to carefully consider the impact on the policy and the potential risks before taking out a loan against the cash value.

When considering a policy loan, policyholders should review the terms and conditions carefully and consult with a financial advisor or insurance agent to ensure they fully understand the benefits and limitations. It is also crucial to weigh the impact on the policy against the need for financial assistance, as borrowing from a life insurance policy should be treated with the same diligence as any other loan.

Cash value withdrawals

Withdrawing from your cash value can be a good option if you need quick cash but don't want to forfeit your coverage or ownership. However, there are some drawbacks to consider. Withdrawing from your cash value will reduce or deplete the available cash value and lower your death benefit. There may also be potential tax implications.

Before making any decisions, it is important to consult with a professional tax advisor and your insurance agent to understand the financial impact on your life and to consider your coverage, benefits, and premium schedule.

It is also important to remember that not all life insurance policies build cash value. Term life insurance, for example, only offers a death benefit and does not include a cash value. Whole life or universal life insurance policies are more likely to offer a cash value benefit.

Surrendering your policy

Surrendering your Globe Life Insurance policy will immediately cancel your life insurance. Your insurer will terminate the coverage and send you a cheque for the policy's cash surrender value. This is the money a life insurance policyholder receives for ending their coverage before the policy's maturity date or before they pass away. This amount is calculated by subtracting any surrender fees and taxes from the total cash value of the policy.

The cash surrender value is different from the policy's cash value, which is the total sum in the savings component of permanent policies like whole and universal life insurance. The value differs because of surrender fees, which typically range from 10-35%. These fees are usually highest in the early years of the policy and gradually decrease over time. Most policies also have a waiting period of at least 15 years before you have the option to surrender them.

When you surrender your policy for its cash value, you will lose coverage and no longer be responsible for paying insurance premiums. You may have to pay surrender fees for cancelling your coverage early, which will be deducted from any cash value your policy has or paid out of pocket if you have a term policy. You may also have to pay taxes on the surrender value if your earnings exceed the amount you've paid into the policy.

For example, if you've paid $20,000 into a policy through premiums but have a cash value of $30,000, you will need to pay taxes on the $10,000 in earnings over what you paid. The amount of tax you'll pay depends on your income bracket. Assuming a rate of 22%, you would pay $2,200 in tax. That means your cash surrender value would be $27,200 before fees, which range from 10-35% of the policy's cash value. Assuming surrender fees of 20%, this would be another $5,440 deducted, leaving you with a final cash surrender value of $21,760.

The most common reasons for surrendering a life insurance policy include:

• No longer needing coverage because your children are grown up and independent.
• The insurance premiums are unaffordable.
• You've found a better policy that offers improved coverage or cheaper premiums.
• You urgently need cash.

Life insurance settlements

A life insurance settlement is the sale of a life insurance policy to a third party, known as a life settlement provider. The owner of the life insurance policy sells the policy and receives an immediate payment in return. The life settlement provider then becomes the new owner of the life insurance policy, pays any future premiums, and receives the death benefit when the insured person dies.

Life settlements are typically considered by those who no longer want or need their current policy or can no longer afford the premiums. It is important to proceed with caution and understand the implications of such a transaction.

Factors to Consider:

• Ongoing Life Insurance Needs: If you plan to buy a new policy with the proceeds of the life settlement, consider whether you will be able to get equivalent coverage and at what cost. Your age or changes in your health status may result in higher premiums.
• Less Costly Alternatives: There may be other options available under your current policy that can help you keep it in force for your beneficiaries. For example, you may be able to take out a policy loan or utilise the cash value of your policy.
• Determining Fair Prices: It can be challenging to know if you are getting a fair price for your policy. It is recommended to shop around, contact multiple life settlement companies, or use a licensed broker who will act in your best interests.
• Impact on Your Finances: The lump sum payment received from a life settlement may be taxable and could impact your eligibility for state or federal public assistance.
• Impact on Your Survivors: Consider the future financial needs of your survivors against your need for current income.
• Access to Your Health Information: Buyers of your policy may have access to personal information about your health status, and you may be required to provide periodic updates.

Questions to Ask:

• Do you know who you are dealing with? Check if the life settlement company or broker is licensed and if there are any complaints against them.
• What will happen to my policy? Ask if the life settlement company will hold, sell, or package the policy with other policies for investors.
• What information will I need to provide, and to whom? You will need to authorise the release of medical and personal information, which may be shared with other entities.
• How can I protect my privacy? Carefully read the application and understand the procedures in place to protect your confidentiality.
• What is the best price I can get for my policy? If using a broker, ask about the bids received and the steps taken to ensure a competitive offer.
• What are the transaction costs? Understand how the broker or intermediary is compensated and evaluate if this is the best option for you.
• What if I change my mind? In some states, you may have the right to rescind the contract within a certain period.
• Am I being pressured to decide quickly? Be cautious of high-pressure sales tactics and aggressive advertising. A legitimate professional will provide clear answers and give you time to make an informed decision.

It is recommended to consult a professional financial advisor, attorney, or accountant to determine if a life insurance settlement is suitable for your circumstances.

Alternative to cashing out: personal loans

If you're facing financial difficulties but are hesitant to withdraw money from your life insurance policy, you might want to consider applying for a personal loan. Personal loans are available from banks, credit unions, and individual lenders, and they can give you quick access to the funds you require, usually at reasonable interest rates.

Consulting a financial advisor or accountant before taking out a personal loan is highly recommended, as they can help you determine if this option is the best fit for your specific circumstances. They can provide valuable insights and guidance to ensure you make an informed decision.

It's important to remember that personal loans may have different implications compared to cashing out your life insurance policy, so understanding the potential advantages and drawbacks is essential. Personal loans may offer a more immediate solution without requiring you to sacrifice your life insurance coverage or ownership. However, it's crucial to carefully evaluate the interest rates, repayment terms, and any associated fees or charges that may apply.

By exploring this alternative, you can make a well-informed decision that aligns with your financial goals and ensures you have the necessary funds to address your financial needs.

Frequently asked questions