Life insurance loans, especially from whole life or universal life policies, offer a flexible solution to cash flow fluctuations. The process involves checking the available cash value, determining the loan amount, applying for the loan, and repaying the loan without a fixed schedule or penalty fees. Interest rates vary depending on the policy and insurer, and loan terms are generally straightforward.

Important things you need to understand

• Life insurance policies, especially whole life and endowment policies and universal life policies, can be used as a source of cash in an emergency.
• Applying for a cash-value life insurance loan is a simple process that involves checking the available cash value and determining the loan amount needed.
• Check online access or contact the life insurance company’s customer service to verify policy values ​​and maximum loan availability.
• Contact the life insurance company, your agent, or use the insurance company’s online portal (if available) to request a loan.
• Loan processing time is approximately one week.
• Life insurance loans offer flexible repayment options, allowing borrowers to make payments of any amount at any time.
• Interest rate: The interest rate varies by policy and insurance company. Some offer fixed interest
• rates, others offer variable interest rates, which typically change on the policy anniversaries.
• Loan Purpose: Life insurance loans provide a convenient way to access cash in financial emergencies.

People’s cash flow fluctuates. There are a variety of reasons for this. An emergency, job loss, or occupational disability are all risks that can lead to a cash flow crisis in the short or long term.

Anyone who is unemployed, on furlough leave, or running a business experiencing a decline in business quickly recognizes the benefits of this boring rainy day reserve.

One way people can bridge cash flow fluctuations in an emergency is with life insurance, particularly whole life insurance and universal life insurance, which build cash value (sorry, term insurance buyers, you’ll have to look elsewhere).

However, taking out a loan against a life insurance policy with cash value can be a bit intimidating the first time. Fortunately, the process is very simple, and we’ll walk you through it so you can tackle it like a pro the first time.

Step 1: Check your available cash value

The first step in taking out a life insurance loan is to decide how much money you need and how much money you have available in your policy. If you’ve registered for online access to your policy values, almost all life insurers will provide you with a cash value statement, which usually includes a section on the maximum available loan amount. You can borrow any amount up to this limit.

If you don’t have online access to your policy, you can always call the life insurance company’s customer service. They usually use an automated service that asks for your policy number and some other personal information before displaying your policy values.

If the automated service is available, you don’t have to wait on hold for a real person to take over the task of looking up your policy values.

Step 2: Determine the Amount You Need to Borrow

When deciding how much to borrow against your life insurance, I generally recommend aiming for a low amount. Remember that you can always borrow more if the original amount isn’t enough.

If you later find you need more money, simply repeat the steps below to apply for a loan. However, you should be careful and avoid borrowing for non-essential expenses that you need to cover when money is tight.

Step 3: Apply for the Loan

The easiest and fastest way to apply for a loan is to call the life insurance company and request a loan from a customer service representative. Some insurers offer the option of submitting loan applications online through the portal mentioned above, where you can check your insurance values. If available, this is another good option.

Few life insurers require a physical loan application form these days, and you want to avoid that if possible. Additional paperwork always slows down the process.

You don’t have to prove your creditworthiness or fill out a loan application. Life insurance loans are a contractual arrangement available to all policyholders, provided there is a cash value.

They are not dependent on an assessment of your likelihood of repayment. Life insurance loans do not appear on your credit report and do not affect your credit score for loans you apply for through a bank.

A loan application typically takes about a week to process.

Some insurers will transfer the loan amount directly to your bank account via EFT. They will need your bank details (often a copy of a voided check; some also require a completed and signed EFT form).

Other insurers insist on sending the money by mail or bank transfer (this usually incurs transfer fees). If you receive the check by mail, make sure the insurance company has your current mailing address on file.

Once you receive the loan, you can do whatever you want with the money. If you plan to repay the loan (which is the case for most people who take out loans in emergency situations like these), you should at least consider how you will repay it.

Step 4: Repaying the Loan

Life insurance loans do not have a fixed repayment schedule. You will not receive a repayment note or regular monthly repayment notices from the life insurer. At most, you will receive an interest statement, which will be sent to you around the policy closing date. You have the choice of either paying the accrued interest or adding it to the outstanding loan balance.

When repaying a loan, the entire loan amount is almost always repaid. You can make repayments in any amount and according to your preferred schedule.

One option is to send a check to the life insurer to repay the loan. You can send checks at a frequency that suits you (e.g., monthly, quarterly, etc.). Simply send the check to the life insurance company’s payment address and indicate that it is a loan repayment on your policy. The insurer will apply the payment to repay the loan balance.

You can vary the amount as you wish. For example, you can repay €1,000 one month, €500 the next, and €1,500 the month after. You can also skip intervals if necessary.

For example, you make a payment in May, skip June and July, and start repaying again in August. The insurer doesn’t care when or how much you repay the loan. It will deduct the payment you make whenever you repay it. There are no penalties for doing so.

You can also set up automatic repayment with your life insurance policy via electronic funds transfer (EFT). This means you set up a regular debit order for a fixed amount from your bank account to be used to repay your loan. You don’t need to set this up when the loan is approved.

You can make repayments by check initially and set up the electronic funds transfer (EFT) method once you’re sure of your income. You can cancel the electronic funds transfer method at any time. So, if you have set up an electronic payment method and your situation worsens, you can cancel the electronic payment method and suspend repayments.

There are no penalties for making uneven payments on a policy loan, and there are no penalties for repaying the loan early or for not making regular payments on the loan.

Interest on Life Insurance Loans
The interest rate on your loan depends on your policy and/or the insurance company. Some insurers charge fixed interest rates, while others charge variable interest rates for life insurance loans. You will find out the interest rate when you apply for the loan.

Simply ask your insurance company. You will also find out the interest rate when you receive your interest statement on or around the time of your annual statement.

If you have a variable loan interest rate, your insurance contract will detail how and when the interest rate can change. Typically, changes can only occur on the policy anniversary.

Conclusion
Life insurance loans are a very efficient way to access needed cash in times of crisis. The process may seem intimidating, especially for those who have never taken out a life insurance loan before. The good news, however, is that the process is simple and offers a lot of flexibility in repayment. Many people use loans every day to meet their cash needs.