I very recently discovered just how a life insurance policy can work for you while you are still very much alive. I recently ran into a financial crunch that required me to seek out how I could access some fast funds to float me through the crisis. Another credit card was out of the question, as I didn’t wish to be saddled with any more debt.After brainstorming for awhile, I decided to contact my insurance company in regards to a life insurance policy that I have had since I was born.
My parents set up a small policy on each of their children at the time of our birth. After so many years, this policy almost pays for itself through dividends accrued throughout the year. Aside from paying a small bill once a year, I rarely even think about the policy. This year though, after doing taxes, when seeing my annual tax statement on the policy, I was reminded of the fact that some life insurance policies do have a cash value. Even though I didn’t want to close my policy, I thought perhaps it was what I needed to do.
After speaking with a specialist at the insurance agency, I was informed of the cash value, which was nowhere close to the death benefit available on the policy. You take quite a hit when you cash in the policy, aside from losing any and all benefits the policy offered. I was then informed that I could take out a loan on my policy and was told the loan value of the policy. This amount wasn’t much less than the cash value would be, so I asked some further questions.
The loan value is the amount of cash value able to be borrowed on a policy. This may vary depending upon the type of policy you have. The death benefit of the policy is then reduced to the amount of the original value, minus the loan amount. Now, I am not certain if it works this way with all policies or all agencies, but for me, I was told that this loan never has to be re-paid, however, regardless of if it gets paid back over time or not, I will be charged an interest fee once per year on the amount still outstanding on the loan. After doing the math, I knew this was the way to go to not only get the money I needed to ease my current cash crunch, but also to still ensure that I had a small life insurance policy to help cover costs in the event of my untimely demise. This was a decision I could live with, no pun intended.
I had inquired as to if this would go against my credit as taking out a conventional loan might, and was informed it would neither negatively or positively affect my credit score, which was good news. I was also told that after I paid some of the money back, if ever I needed it again, I could have access to it and use it somewhat like a line of credit. Best of all, this is a tax free way to gain access to your funds, whereas if you cashed in a policy, you would be taxed on at least a partial amount of the funds.
Never before had I realized that a solution had been sitting there for so many years, available if needed. Obviously this is not something you would resort to as a first option, but if other options do fail, it’s nice to know it’s there waiting in times of crisis. Contact your insurance agent if you have questions regarding your options on your own life insurance policy and you might find help is there if needed. Or else, you can just look online for all the information. You can compare different insurance policies as well. You can just look online for average life insurance payout uk, to get a fair idea of market.
