Using the cash value on your permanent life insurance policy for emergencies, opportunities, and buying big tickets can be a great thing if done correctly. Often, clients will borrow from their cash value and say, “do we have to pay this back?”? The answer is no you don’t have to pay it back, but it is to your detriment to not pay it back. Most life insurance companies are charging an interest rate in the 5-7 percent range on loans to the cash values. As a loaner, you always have first dibs on the money in the cash value. Where does much of the money in the marketplace come from for loans? The answer is life insurance companies.
As a policyholder and the owner of the contract, no borrower can ever stand ahead of you. On top of that, the money in the cash value is highly liquid and easy to access. You don’t have to get any approval or qualify to get the money as a loan if the money is in the policy. The key is to pay your policy back and at a higher interest rate than you borrowed the money. If you do this, you will restore the value of the cash value and turbo charge the policy. It will all be to your benefit as you get the interest into your policy above the spread. An example would be borrowing at 6 percent and paying yourself back at 10 percent. Your repayment goes back to paying of the balance of the loan and growing and restoring the policy. This will allow you to continue to go back to your own “bank” policy and keep re-using it for multiple purposes.