What about Cash Value Lines of Credit / Life Insurance Line of Credit?

Life insurance lines of credit have existed for a long time but almost no one ever uses them.

1. You must have a positive cash value yield in the policy to even apply, this typically means you have had the policy for 10 to 14 years and funded it properly.

2. Taking a loan from the insurance carrier themselves is much easier than the Bank’s requirements for a life insurance Line of Credit. (note most banks will require underwriting to acquire the LOC).

3. Interest Rates – interest rates on the LOC offered by the banks are typically much higher than the loan interest rates offered by the insurance company.

4. If the policy is used as collateral for an LOC and the policy owner fails to keep up the premiums or borrows more than the positive cash yield this could cause the policy to lapse. In the case that you no longer have insurance or the policy lapses the client owes the Bank on the line of credit. This is not the case when taking a loan from an insurance company.

In all there are about 5 or 6 banks that do offer a Life insurance Line of Credit, it is typically whole life policies only and sometimes it must be with a specific insurance carrier.

When weighing the pros and cons of a Life insurance Line of Credit, you’re making a smarter financial decision with a Participating Loan from the Insurance Carrier than a Line of Credit against your Life insurance policy.