What happens if I take a loan from my Whole Life Insurance Policy?

You can think about the cash value part of your Whole Life Insurance Policy like this: it’s kind of like a savings account that grows over time as you pay your premiums. You can even think about it as an asset you can tap for money later on when you need it for everything from emergencies to good investment opportunities and everything in between. At Canadian LIC, we often meet clients who have built up substantial cash value and need help in utilizing it. For instance, a client in Ottawa wanted to refinance her home for some renovations and was surprised that liquidity from her policy’s cash value was available to her without a long approval process.

Yes, it will. When you get a loan from your Whole Life Insurance Policy, the amount you are borrowing, plus interest, comes off the death benefit. That means your beneficiaries could get less money when you die. We had a client in Calgary who borrowed from his policy to pay for his daughter’s education. He didn’t realize how much the loan would reduce his death benefit, and unfortunately, his family received less than they expected. This is something you should carefully consider and discuss with your financial advisor at Canadian LIC.

Failure to repay it on time continues to attract interest, increasing your outstanding loan balance. After some time, the result can be the loan amount growing to more than the cash value, thereby rendering your policy lapsed. We once had a client of ours from Montreal take out a loan, and he could not estimate how much interest would be accumulated. She came very close to losing her insurance coverage because the balance was too high. To help forestall this in the future, we would encourage her to set up a repayment plan—or at least periodically check on the status of the loan balance.

In most cases, loans against the cash value of your Whole Life Insurance Policy are tax-free. However, be cautious when your policy lapses or you have surrendered your policy with the outstanding loan against it because the amount of the loan that is more than the premiums you paid will then be taxable. One of our clients from Vancouver faced this situation when his policy lapsed. He was hit with a significant tax bill, which added to his financial stress. It’s important to understand these potential tax consequences and plan accordingly.

What you can borrow is usually based on the cash value you have accumulated in the Whole Life Insurance Policy. Most, if not all, insurers will allow you to borrow up to 90% of the cash value. At Canadian LIC, we’ve had clients like Maria of Toronto, who, through a Whole Life Policy, had built up a significant cash value over 15 years. She was impressed by how much she could get access to and not have to sell anything else or apply for some regular loan when needing the funds for investment in a new business.

Yes, the interest on the policy loan does accrue. In case one is unable to repay this loan, interest is tacked onto the outstanding loan balance, and it will continue to grow. We always remind our clients, like Dave from Vancouver, to consider this very carefully. Dave had borrowed from his Whole Life Insurance Cash Value to help his son with university fees. He initially thought of delaying the repayment, but he came to realize, after discussing it with us, that growing interest would, at some point, impact his policy’s benefits. Well, he then set in place a manageable plan for repayment so he could continue the policy and, therefore, help his family.

Yes, you can have multiple loans against your policy as long as there is enough cash value to support them. However, each outstanding loan reduces the remaining cash value and the available death benefit. For instance, we have a client in Montreal who has taken out several loans in the recent past to fund various business ventures. While each loan was useful at the time, he did not realize that it would cut down so much from the total death benefit his family would receive. After reviewing with us, he decided to focus on paying back the loans to restore value to his policy. If you’re thinking of multiple loans, keep in mind the overall impact on your policy.

Now, if you can’t repay that, then at death, the outstanding amount plus interest will be deducted from the death benefit. Sometimes, if the loan balance gets too big, it may cause your policy to lapse. This happened to one of our clients in Calgary, who borrowed against her policy during a time of financial constraint. Unfortunately, she was not able to pay off the loan, and her policy lapsed, leaving her really uncovered at a critical moment. At Canadian LIC, we help our clients avoid such situations by providing them with consultation and support on how to manage policy loans in general.

Absolutely! Comparing Whole Life Insurance Quotes Online before you decide can help you understand the many Canadian Whole Life Insurance Plans available. In this way, you can choose a plan that really offers the best cash value growth and loan options to help you achieve your financial goals. This is something that we often advise our clients—including Susan from Ottawa—to do before finally taking out a loan. Susan did not realize that some plans had superior loan provisions or better cash value growth. She could compare plans online to find one that suited her current needs and would lay a firm foundation for the future.

When you borrow against that cash value in a Whole Life Insurance Policy, the cash value of the policy does continue to grow; however, the interest on the loan might slow that down. For example, one client I have in Edmonton borrowed from his policy to buy another property. While he still experienced some growth in cash value during that time, the loan interest somewhat offset this growth. We helped him understand that by paying back that loan, his cash value would recover and continue growing at full potential. If you’re considering taking out a loan, you’ll want to discuss with your insurance advisor how that might impact your policy’s cash value over time.

Yes, you can use your Whole Life Insurance Policy’s cash value for any purpose: funding a child’s education, starting a business, or handling unexpected medical expenses. Our Halifax client was able to tap into her policy’s cash value to pay for the family member’s urgent medical treatment. She felt relieved she wouldn’t have to wait through some long-winded loan approval process, and she had easy access to the funds. At Canadian LIC, we have many clients who, from time to time, appreciate the flexibility that Whole Life Insurance Cash Value offers.

At Canadian LIC, we believe in giving advice that focuses on the individual according to his specific needs and financial objectives. We have helped people from all walks of life learn the pros and cons of borrowing from their Whole Life Insurance Policy. For example, a business owner in Vancouver was confused about whether he should borrow from his policy or pursue alternative financing options for his small business. After speaking thoroughly with us, he knew his decision and how it was going to impact his financial future. Now, let us help you make an informed decision, be it a loan or searching for the best Whole Life Insurance Quotes Online.