What are the Pros and Cons of Loan Against Insurance Policy?

Just like any other loan, even life insurance policy loans have their own pros and cons. It is essential to look at both aspects before making the decision to borrow this loan.

Pros

When getting a loan against a life insurance policy, the process is quite simple. This is because you are borrowing this loan against your personal assets and no approval process needs to be followed for income verification or credit checking. Moreover, policy loans have lower interest rates compared to other bank loans that come with higher interest rates.

In many cases, life insurance loans are even tax-free and can be availed within five to 10 working days. You can even choose the funds for a loan against life insurance policy the way you want. Just because your policy’s cash value serves as collateral for the loan, you can use the money for any purpose – from household billing to vacation funding.

The insurance company won’t require any explanation for how you wish to spend your funds after getting the loan. Unlike the credit card or bank loan, there is also no need to pay a monthly amount for your insurance policy loan and there is no payback date either.

Cons 

If the loan borrower dies before paying the loan, the loan amount and the interest have to be paid by the beneficiaries. This could cause a problem to the beneficiaries if they were intending benefit from that insurance policy.

If this loan amount is unpaid, the interest adds to the principal amount of the loan. If the balance of the loan increases more than the cash value amount, this policy could even lapse and cause risk of termination from your insurance company.

To know more about the loan against life insurance policy and its and pros and cons, click here: Loan Against Life Insurance Policy – Here are Some Pros and Cons!