Using Permanent Life Insurance as Your Personal Bank

No long-term financial plan is complete without having a “rainy day” fund. Whether it’s your savings account or your mattress, saving up money and putting it somewhere safe is a key part of making sure that you and your family will be able to weather any future financial issues. 

What you may not know is that if you own a Permanent Life Insurance policy or plan on owning one, you can use that policy as a way of saving money. 

Let’s say, for example, that you have a $1 million permanent life insurance policy that you have been making payments on for the past ten years. If you have preferred plus status and are around the age of 25, your monthly payments will probably total around $700, so by the time you are around 35 years old you will have put around $84,000 into your policy.

Here’s the thing: that money isn’t gone forever – in fact, you can even take a loan out with that money. This is where the advantage of permanent life policies shine, as you can take the cash value out of your policy totally tax-free in the event that you really need it. 

However, it’s very important in this case to be aware of what you are doing. While it might seem you are taking out your own money, the reality is that you are taking a loan from your insurance company while using your policy as collateral on the loan.  

That being said, you don’t need to worry as much about paying back this type of loan compared to a typical bank loan. This is because there is technically no need for you to repay it, which can be extremely beneficial if you need emergency cash now. You should still try to pay back some portion of the loan, however, as any outstanding debt left over will be taken out of your death benefit when you pass, meaning your beneficiaries may not get the full amount as stated in your policy. This is something to be noted when you take money out of your policy, especially when you consider that most of these loans have an annual interest rate of about 7 to 8 percent. 

In summation, while permanent life insurance policies may be a bit on the expensive side, they can be a valuable option for you if you want to have a small pool of money to pull from if you need it. For help navigating the differences between term and permanent life insurance policies, give us a call at (425)-246-4222 or visit us to get a quote or schedule an appointment at www.pacificinsurancegroup.com. We look forward to working with you and can’t wait to help you reach your financial goals.