Why pay interest to borrow your own savings? That's crazy!
|Should I Borrow Against My Life Insurance Policy?
Borrowing against your life insurance is like paying your bank to borrow money from your passbook savings (except your savings account probably pays more interest than your insurance policy, according to the Federal Trade Commission). Who in their right mind would pay any institution, bank or insurance company, to borrow their own savings? Evidently, a lot of people - who simply don't know any better, or who have been conned by their agent into believing it's a good idea in case of an emergency.
Cash value insurance, regardless of what it's called; Universal, Modified, Variable, et cetera, has one major flaw and several others as well. The one major flaw is that you pay for two things, insurance and some sort of "savings" plan, but you only ever collect one. If you die your beneficiaries collect the face value of the insurance, but the insurance company keeps your savings.
"No, no, that's not true," the insurance agents scream vehemently. Well, what happens to the savings then? "Oh, it's part of the death benefit," they reply. Okay, so my $50,000 savings becomes half of my $100,000 death benefit, and I'm getting ripped off for the other $50,000 of insurance that I've been paying for all these years. That's not right!
"Oh, but you can borrow money against your policy," the agents plead. Well, that's not a good plan either. First off, if I borrow $25,000 (of my own "savings") from my $100,000 policy and then die a week later, my beneficiaries only get a check for $75,000 - not $100,000 - so I'm ripped off twice. Once because I have to pay interest to borrow my own savings and then again when my beneficiaries only collect $75,000 instead of the $100,000 that I'd been paying for religiously all those years. Oh, that's not good, not good at all.
I could go on and on, but just the simple fact that I have to borrow my own "savings" is enough to convince me that buying term insurance (which is much less expensive than any form of cash value insurance) and investing the difference into an investment vehicle I feel comfortable with (like a stock mutual fund invested in blue chip companies) is a much better way to go. If only because I'll have more money if I live (which I probably will) and more money if I die, for my beneficiaries. Any other decision simply means I've fallen prey to the con-artist malarkey that some insurance agent or insurance commercial pushed upon me.
If you've already fallen prey to the cash value, borrow your own savings type of policy; and many people have, then I suggest you check out a company like Primerica that advocates the "buy term and invest the difference" philosophy. The company they place their term insurance with is an A+ rated company (according to A.M. Best, the #1 insurance rating company in the world for over 100 years) and the face amount of insurance they have in force is more than New York Life, Metropolitan Life and Prudential all put together - and has been since 1989. Lastly, before all those agents bomb me with hate mail, I'll give you A.M. Best's web addresses for checking policy prices from company to company as well as the page to check the financial strength ratings of all the licensed insurance companies in the United States. Their home page is: http://www.ambest.com
and their web page for checking the financial stability ratings of various insurers is: http://www3.ambest.com/ratings/advanced.asp
Should you borrow against your policy? No, you should sell it back to the company you got it from and then do what all the wealthy, knowledgeable people around the world do - buy term and invest the difference. The only exception would be if you're older and in poor health, perhaps even uninsurable, then you'd probably be better off just hanging on to what you've already got.