There's no one way to pay off debt, and that can mean good news for holders of whole life insurance policies.
Term Life Insurance versus Whole Life Insurance
Whole Life
In addition to a death benefit payout, whole life insurance is an investment. Your monthly premiums are invested, increasing the policy value.That added value goes into the death benefit payout. But, you can also tap into those funds later in life for things like paying down debt.
Term Life
Term life insurance uses your monthly premiums toward a one-time death benefit for a beneficiary of your choice. It provides coverage for a specific 'term' or period of time. Term life policies don't build up a cash value over time; you can't borrow from them to pay down your debt.
Borrowing From Your Whole Life Policy
Building up a cash value that you can borrow from doesn't happen overnight, but once your policy has, using your life insurance to pay off debt might be right for you.
Pros And Cons of Borrowing from your Whole Life Insurance To Pay Off Debt
Pros
• Because there's no credit check or lengthy approval process, accessing the funds is generally straightforward. Most people who borrow from their life insurance have the money in their bank within a week.
• Money you borrow from your life insurance won't show on your credit report.
• Without an official repayment deadline, you can take your time paying back what you borrowed at a schedule that suits your situation.
• Interest rates are often lower than standard lending options.
Cons
• Failing to repay the loan means your beneficiary would receive a smaller death benefit payment.
• In certain situations, insurers can potentially cancel your policy: if the total amount you borrow, plus interest, is equal to more than the policy itself.
• You may have to pay an additional 'processing' fee to your insurer to complete the transaction.
How to Borrow from Your Whole Life Insurance Policy To Pay Off Debt
The first step is to talk to your insurer. Check if your whole life insurance has built up a cash value. If the answer is yes, the next step is completing necessary forms.
Impact on Your Policy
Provided you repay the borrowed amount plus interest before a death benefit needs to be paid out, there's generally little to no impact to your whole life insurance policy.
Is Paying Off Debt With Your Life Insurance Right For You?
In addition to discussing your life insurance needs with an insurance professional, whether or not using your whole life insurance to pay off debt is it right for you will require careful evaluation.
How To Avoid Incurring New Debt
Congratulations, you've paid off your debt and your whole life insurance policy is back to normal!
How can you make sure you won't slip back into financial trouble? Here are a few tips to help you keep more of your money in your bank account:
• Track ALL your expenses monthly.
• Carefully create a budget that works for you - and stick to it.
• Build up an emergency fund. Put a little bit away each month and use this for unexpected expenses, not your credit cards.
• Only use credit cards to charge things you can afford to pay off in full every month.
Finding out more about whole life insurance begins with comparing insurance quotes with InsuranceHotline today.
