Asked by Meredith L  |  Submitted February 18, 2016

If I borrow from my life insurance, why do I have to pay it back if it’s my money?

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  Answers  |  2

February 19, 2016

Hi Meredith,
I think you ask a great question.
When you borrow against the cash value of your life insurance policy, the benefits are reduced by that borrowed amount should you die prior to repayment. As a loan, you are expected to repay, but not required.
Thanks for question and good luck!
Darius

$commenter.renderDisplayableName() | 09.24.17 @ 12:38

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February 19, 2016

The short answer is you don't have to pay it back.

That being said, as Darius stated, when you "borrow" money from your life insurance policy, you are actually taking a loan against the policy's death benefit. That loan will accrue interest the same way a loan at the bank would. Should you happen to die prior to paying back your loan, the death benefit would be reduced by the amount of your loan, plus any interest that had accrued.

I always warn my clients that unless it is a dire emergency, you should probably let the cash value continue to grow. That is, unless the policy was properly designed so that taking loans against the policy would not jeopardize the policy in any way if the loans were not paid back.

Hope that clarifies things a little.

Mike Zaino
www.TZGFinancial.com

$commenter.renderDisplayableName() | 09.24.17 @ 12:38

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