How to Borrow From Life Insurance to Pay Off Debt
- 1). Determine the type of life insurance policy you have. If you have a copy of your policy, look to see whether it's term, whole life, or universal life. If you don't have a copy of your insurance policy, call your life insurance company and ask what type of life insurance policy you have. Term policies don't accumulate cash value, so if you have a term policy, you can't borrow from it to pay off debt.
- 2). Find out the amount of cash value in your policy by calling your insurance company. Confirm with the customer service representative that this is the maximum amount you can borrow from the policies. Some policies carry surrender charges during the first several years you own the policy, so your policy may have a "cash value" and a "cash surrender value." The cash surrender value is the amount you can borrow from the policy.
- 3). Request the forms you need to borrow against your policy. You may be able to print these online. Once you receive the forms, complete them carefully. There may be multiple places for you to sign or initial. Make a copy of the completed form.
- 4). Mail or fax the completed form to the insurance company. If you haven't received a confirmation letter or check in 10 business days, call the insurance company to confirm receipt of your form and find out when you can expect your check.
- 5). Deposit the check into your checking or savings account once you receive it. Pay off your debt. Make certain to obtain payment confirmation for all debts you pay off and keep a copy for your records.
- 6). Decide whether or not to repay the money you borrowed from your life insurance policy. If you don't repay the loan, the loan will continue to accumulate interest and will be deducted from your final death benefit. If you do repay the loan, contact your insurance company to review your repayment options.
