Benefit 3. Accessing Personal Loans
We often consider taxes to be an inescapable part of life. However, life insurance is one of the few products that can offer useful ways to sidestep certain taxes. Many life insurance policies offer owners a tax-free solution to their financial needs, upon the insured’s death. What's more, while you are living, it’s sometimes possible to take tax-free loans from the cash value of a policy.
When you take out a life insurance policy, you can begin to accumulate "cash value." It is possible, in certain circumstances, to access this value using loans and withdrawals. Though you should expect to pay interest on these loans — just as you would with a loan from a traditional bank — you will not pay taxes on the money you receive.
In certain policies, the interest rate on the withdrawal from the life insurance cash value is lower than a typical bank loan. However, your policy-provider may ask you to use the death benefit as collateral. This means that if you die before paying back the loan, your death benefit will fall by the amount outstanding.
In our next blog post, we will discuss the fourth benefit of life insurance that most people haven't thought of.