Did you know your life insurance policy can help you get a loan?Tags: Introduction Examples For Research PaperSteps To Solve A Word ProblemRogers Business Internet PlansCreative Writing Inspiration PicturesSmall Organic Farm Business PlanDissertation PresentationGreatest Accomplishment Essay
A permanent life insurance policy with a specific cash value allows the lender access to that amount as repayment of the loan if the borrower were to default.
The policy owner’s access to the cash value is limited as a safeguard on the collateral.
A term policy secures the loan in the case of a death, and it is required for many types of bank loans.
Collateral refers to the cash value in a life insurance policy — whole life or universal life policies that build up cash value — but it does not apply to term policies.
Thus, a lender is more likely to approve your loan request.
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You are free to assign your life insurance policy, granted there isn’t some kind of limitation in your contract that prevents it.Also, your access to the cash value (let’s say you have a whole or universal life policy) is restricted in an effort to protect the collateral.If the loan is paid off before your death, the lender will no longer be the beneficiary of the death benefit.The remaining balance is then directed to any other named beneficiaries.And the policy has to stay current, meaning you need to keep up with paying all the necessary premiums for the life of the loan.Either way, using life insurance as collateral to secure a loan is a fairly common practice that every insurance company can handle. Go to your bank and find out what their requirements are and what kinds of loans they offer.Loans are most often backed by the Small Business Administration and sold by larger banks like Wells Fargo, Chase, or Bank of America. Here is a list of the most active Lenders of SBA 7(a) General Small Business Loans.If your bank asks you to assign them as the beneficiary, don’t do it.If you die and have only paid off half your loan, the bank will get the remaining balance because they are the beneficiary, and that contract takes precedence over any will. Banks only require a collateral assignment, which means as the amount owed on your loan decreases, the amount that goes to the bank will decrease as well.Eventually, you go to your bank for a 0,000 loan and use a collateral assignment on the policy as partial collateral.Your children are named as the beneficiaries on your life insurance policy.