Personal Finance presentation, loan types and institutions life insurance company prepared to get financially fit by practicing personal finance credit sources. First, we’re going to take a step back and think about the sources of credit places we might go when thinking about personal financing or a loan. And then we’ll zoom into the life insurance companies.
So credit sources, first thing that would come to mind typically be the commercial banks, which we talked about in a prior presentation, consumer finance companies and credit unions, which we have talked about in prior presentations. This time, we’re focusing in on life insurance companies kind of the more unusual place to go for a loan at this point, that’s where our focus will be this time.
And we have the Federal Savings banks, the savings and loan associations, which we will focus on in a future presentation. So we’re looking at the life insurance companies not to be purchasing life insurance, in this case, per se, because we’re focusing in on them as possible financing or loan option, which is not the first thing that you would come to mind when thinking about a life insurance company, which primarily, of course, offers life insurance.
And it’s not, it’s usually something that you might not want to be doing. In other words, you might want not be thinking of, of course, life insurance company as the first place to go for financing, it would probably be a place that you would go after having exhausted some of the other types of options, possibly not being able to get financing at a bank or something like that. But needing cash at this point in time, your thought might be, hey, look, I’ve been paying into this life insurance company,
is there any way that I can get a loan or something like that possibly against the life insurance company? That can be a little bit complex of a question, because it kind of depends on the type of life insurance and so on. So we’re not going to get into too much detail on different types of life insurance here, we might talk about more of that in the future. What I want to emphasize here is that could be possible that you could be a source, but probably not for financing, but probably not the first place that you want to go where would be thinking of it would be a place that you might be thinking of after having exhausted some other sources.
So just in general life insurance companies lending policies may include lend on cash value of the life insurance policy, so well, so you’d have to have a policy that would have the cash value, we’ll talk a little bit more about that in a second. No date or penalty on the repayment deduct amount owed from the value of the policy benefit, if death or other maturity occurs before repayment. And so you can see how it would provide some kind of security then to the company in that way. So let’s read that last one, one more time, deduct amount owed from the value of the policy benefit, if death or other maturity. maturity occurs before repayment.
So life insurance company loan types to the loan type, I’m going to call it a life insurance type of loan. So in general, a life insurance type of loan that you might get at a life insurance company, borrowing from a life insurance policy should be the last resort when other options for funding have been used up. So it’s typically a you know, it’s going to be a last resort type of option.
Generally, you will only be allowed to borrow if you have permanent life insurance, whole life or universal life, including a cash component instead of term life insurance, which does not. So that gets into kind of the different types of life insurance policies, which we might talk a little bit more about in the future.
And there’s different arguments in terms of what like what kind of life insurance should you actually get, because there’s differences between Term Life Insurance, which is kind of like a more pure type of life insurance and a whole life in Universal, which could have some other components to it, including a cash component. And that’s in essence, what you’re borrowing against, is that is that cash component, so you have to have that kind of life insurance that you’ve been paying into, that has that component,
which would then allow the the institution to use that as a kind of collateral to support the loan. And so again, it gets a little bit kind of tricky in different types of life insurance, and we’ll talk more about possibly different life insurance just focusing in on what’s the best life insurance possibly to get in future presentation. So the reason is that the permanent life insurance allows you to borrow against the funds that have built up after a certain point in time typically a decade.
The money is yours tax free, but there are of course, mandatory interest payments, paid back the loan is optional. However, if you do not repay the death benefit will be paid out at a lower rate as the life insurance company will subtract the loan and the unpaid interest rates. So if you do repay, you can make periodic payments with annual interest payments, pay an annual interest only or deduct the interest owed from the cash value still in your policy. That’s just a general recap.