Borrowing Against Your Globe Life Insurance: What You Need To Know

Borrowing against your life insurance policy can be a quick and easy way to get cash in hand when you need it. However, it's important to understand the financial implications and potential risks before making any decisions. In this article, we will discuss the option to borrow against your Globe Life Insurance policy, including the advantages and disadvantages, and provide you with the information you need to make an informed decision. We will also explore other alternatives to accessing cash, so you can choose the best option for your financial needs.

Borrowing from a life insurance policy

Life insurance is primarily designed to provide financial support to your family in the unfortunate event of your passing. However, life insurance policies, particularly permanent policies, can also serve as a financial safety net during your lifetime. If you have a whole life or universal life insurance policy, you may be able to borrow against it by utilising its cash value. This option can be particularly advantageous during financial emergencies or periods of instability.

Understanding Cash Value

Whole life and universal life insurance policies are designed to build cash value over time. A portion of your premium payments is allocated to this cash value account, which grows at a rate dependent on the type of policy. For example, in a regular universal life policy, the growth is based on current interest rates, while in a variable universal life policy, the cash value is invested in the stock market. This cash value is intended to offset the rising cost of insurance as you age, ensuring that your premiums remain level and affordable throughout your life.

Borrowing Against Your Policy

The process of borrowing against your life insurance policy involves utilising the cash value that has accumulated in your account. It's important to note that you are not actually withdrawing money from the policy itself. Instead, your insurer lends you the funds while using the cash value as collateral. This means that the cash value continues to accumulate, albeit at a potentially different rate due to interest and dividends. The loan amount you can access is typically up to 90% of the policy's cash value, and there is usually no lengthy application or approval process involved.

Advantages of Borrowing from a Life Insurance Policy

Borrowing from your life insurance policy offers several benefits. Firstly, there is no impact on your credit score or history, as the loan is not reported to credit bureaus. Secondly, you can expect lower interest rates compared to traditional loans or credit cards. Additionally, there is no mandatory monthly payment, and you have the flexibility to set a repayment schedule that suits your financial situation. Furthermore, if you are unable to repay the loan, the amount, including interest, will simply be deducted from the benefit paid to your beneficiaries upon your passing.

Disadvantages and Considerations

While borrowing from your life insurance policy can provide temporary financial relief, there are important disadvantages and considerations to keep in mind. Firstly, failing to repay the loan may result in a reduced death benefit for your beneficiaries. Secondly, if the interest and unpaid loan amount exceed the remaining cash value, you risk losing your policy altogether. Additionally, it's essential to treat this option with the same diligence as any other loan. Consider the impact on your coverage, benefits, and premium schedule. Finally, remember that the primary purpose of life insurance is to protect your beneficiaries, so carefully evaluate your financial situation before tapping into your life insurance policy.

Pros and cons of taking a loan against your policy

Borrowing against your life insurance policy can be a quick and easy way to access cash, but there are some important pros and cons to consider before making a decision.

Pros

• No lengthy application process: Unlike other loans, there is no approval process, credit check, or income verification required when borrowing from a life insurance policy.
• No credit check: You can borrow without a credit check, and policy loans do not show up on your credit report.
• Lower interest rates: Policy loans typically have lower interest rates than other types of loans, such as personal loans or credit cards.
• Flexible repayment: You can repay the loan on a schedule that you set, and there is no required monthly payment or payback date.
• No tax on loan amount: Money borrowed from a life insurance policy is not taxed as income.

Cons

• Risk to death benefit: If the loan is not repaid, the death benefit for your beneficiary will be reduced.
• Risk of losing coverage: If the interest and unpaid loan amount total more than the remaining cash value, you may lose your insurance coverage.
• Interest owed: You will owe interest on the loan, which will continue to be charged until the loan plus interest is paid off.
• Impact on policy: Borrowing against your policy will impact your coverage, benefits, and premium schedule.
• Tax implications: If the outstanding loan is greater than the amount you've paid in premiums, you may owe taxes.

It is important to carefully consider these pros and cons and consult with your insurance company about how taking out a loan will impact your policy.

Cash value and face value explained

When it comes to life insurance, it's important to understand the difference between cash value and face value. These terms are often used interchangeably, but they have very different meanings. Understanding the distinction between them can help you make informed decisions about your life insurance policy.

Cash Value

Cash value is the amount of money that builds up over time in a permanent life insurance policy. It is based on the premiums you pay, and a portion of each premium payment goes towards the policy's cash value. This value can be borrowed against, used to pay premiums, or withdrawn, depending on the policy's terms and conditions. It is important to note that accessing the cash value may come with fees and tax implications.

Face Value

Face value, on the other hand, is the amount of money that your beneficiaries will receive upon your death. It is also known as the death benefit. The face value is determined when you purchase the policy and remains the same throughout its life. It is the primary factor in determining the monthly premiums to be paid.

The Relationship Between Cash Value and Face Value

While both values are important components of a life insurance policy, they serve different purposes. The cash value is meant to provide a financial benefit to the policyholder if they cancel or surrender their policy. In contrast, the face value is designed to provide financial protection for the policyholder's beneficiaries in the event of their death.

It is worth noting that the relationship between cash value and face value can vary depending on the type of life insurance policy. For example, whole life insurance policies tend to have higher cash values than term life insurance policies, but they also have higher premiums.

Advantages and Disadvantages of Borrowing Against Cash Value

Borrowing against the cash value of your life insurance policy can be a great way to access money when you need it. It does not require a lengthy application process or a credit check, and the policy loans typically have lower interest rates. Additionally, policy reports do not show up on your credit report. However, it is important to consider the potential risks. Borrowing against your cash value can reduce the death benefit for your beneficiaries if the loan is not repaid, and you may even risk losing your policy if the interest and unpaid loan amount exceed the remaining cash value.

How to pay back a loan taken against your policy

If you have a whole life or universal life insurance policy, you may be able to borrow against it. This is because these types of policies accrue a cash value, which is funded by a portion of the premiums you pay.

If you have taken out a loan against your Globe Life Insurance policy, it is important to understand the process and implications of paying back the loan. Here are some key considerations:

• Interest rates and fees: While policy loans typically have lower interest rates, it is important to understand the interest rate being charged on your loan and whether there are any additional fees or costs associated with the loan. Make sure you understand the total amount you will need to repay.
• Repayment schedule: Work with your insurance provider to set a repayment schedule that fits your financial situation. Remember that you can choose to repay the loan according to this schedule, but it is not required.
• Beneficiary's benefit: If you choose not to repay the loan, the amount borrowed, plus interest, will be deducted from the beneficiary's benefit. This could result in a reduced death benefit for your beneficiary. It is important to consider the impact on your beneficiary when deciding whether to repay the loan.
• Impact on your policy: Failing to repay the loan and interest could result in losing your policy if the total amount exceeds the remaining cash value. Consider the potential consequences for your coverage and benefits.
• Collateral assignment: If you have used your policy as collateral for the loan, the collateral assignment will be removed upon full repayment. This means the beneficiary of your policy will no longer be the lender but will revert to the person you originally chose.
• Budgeting: Create a budget and stick to it to ensure you can feasibly repay the loan. Treat the loan with the same diligence as you would a regular bank loan.
• Seek professional advice: Consult a financial advisor or a licensed insurance professional to fully understand the implications of taking out and repaying the loan against your policy.

Alternative ways to cash out a life insurance policy

Borrowing against your life insurance policy can be a quick way to get cash, but it's important to understand the risks involved and consider alternative options. Here are some alternative ways to cash out a life insurance policy:

Withdrawals:

You can withdraw a portion of the cash value that has accrued in your permanent life insurance policy. This option is often referred to as a "partial cash surrender." Withdrawals are usually limited to the amount you've contributed in premiums. While withdrawals from the policy basis are typically not taxable, withdrawing more than you've paid in premiums may be subject to taxes. Additionally, withdrawals will reduce the death benefit that your beneficiaries will receive.

Loans:

Taking out a loan against your life insurance policy is another option. Life insurance policy loans usually have lower interest rates compared to personal or home equity loans, and there is no loan application or credit check required. However, interest charges will apply, and any unpaid balance will reduce the death benefit.

Surrender the Policy:

You can choose to cancel your life insurance policy and receive the "surrender value," which is the cash value minus any surrender fees or charges. However, this option comes with several drawbacks. Your policy will be terminated, meaning you will no longer have life insurance coverage, and your beneficiaries will not receive a death benefit when you pass away. Additionally, if your payout exceeds the amount of premiums paid, you may owe income tax on the gain.

Sell the Policy:

Selling your life insurance policy to a third party through a life settlement is another alternative. In this case, you will receive a lump sum that is greater than the cash value but less than the death benefit. The third party will then take over premium payments, and they will receive the death benefit when you pass away. This option may be suitable if you have an immediate need for cash and no longer require life insurance coverage. However, your heirs will not receive a death benefit, and you may owe taxes on the sale.

Alternative Loan Options:

Before cashing out your life insurance policy, consider alternative loan options that may be less risky and have fewer long-term consequences:

• Personal loans: Unsecured personal loans don't require collateral and can provide quick access to funds.
• Home equity loans or lines of credit: If you're a homeowner, you may be able to borrow against the equity in your home.
• Retirement account loans: Borrowing from your 401(k) or Roth IRA can provide access to funds at a lower interest rate, but the funds won't earn returns during that time.
• 0% APR credit cards: For smaller cash needs, a credit card with a 0% introductory APR can be a good option, but be sure to pay off the balance before the introductory period ends.

Remember, before making any decisions, carefully consider the pros and cons of each option, including costs, fees, penalties, and interest. Additionally, consult with a financial professional to understand how each option may impact your specific situation.

Frequently asked questions