Is there a maximum that I can temporarily take out of my life insurance plan?
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Asked August 8, 2014
Strictly speaking, you can only borrow money from a permanent life insurance policy. That type of life insurance generally has a secondary value, known as a cash value or accumulated value that contains the total amount of money you are able to borrow. Other types of policies may have values available before you pass away, such a long term care or disability coverage, but those are payout values, not amounts that can be borrowed from and then paid back.
The cash value of a permanent life insurance policy grows over time. With each premium paid into the policy, a small, preset amount is transferred to the cash value. In turn, the cash value of a policy earns interest which is also added to the cash value. When you borrow from a life insurance policy, the cash value is what you borrow from, and you can never borrow more than the current accumulated value.
Depending on the way your life insurance policy is written, you can borrow some or all of the accumulated cash value. Some policies will limit the amount you can borrow up to a percentage of the full cash value, while others will allow you to borrow up to the full cash value. This amount will always be much smaller than the actual face value of the policy, although some life insurance policies may allow you to make accelerated deposits into the cash value, treating it the same way as a savings account.
The face value of the policy will not change over time. The cash and face values are completely separate, allowing the policy owner to borrow against the cash value without reducing the minimum amount the policy will pay to beneficiaries if you pass away. When you die, any cash value in the policy will be added to the face value, meaning that the final payout can be higher than the purchased value, but it cannot be lower than what the policy is written for.
Answered August 8, 2014 by Anonymous