Am I Charged Interest On My Policy Loan?

When you think about taking out a loan of any kind, your brain automatically thinks, “what’s the interest charge?” Well, let me explain how mutual whole life companies do things a little differently when you take a loan from your policy.

From day 1, the insurance company you work with is contracted to put your money to work for you. They run your cash compound business via policy contracts. There are no fees, but there are interest charges when you borrow the insurance company’s money. 

How that works (and why you’ll always come out ahead)

• Yes, the insurance company charges you interest for the money borrowed. 
• Yes, you should pay the interest to them. If you don’t your cash values could have a slight reduction. 

Remember, before you contracted together your insurance company sent you the values they guaranteed to you if the insured person died on day 1. This is otherwise known as the death benefit. Any funds you borrow as a loan from your policy are a prepayment of your death benefit.

What this means for you

The insurance company puts your money to work. So when you borrow money, you’re not borrowing your own money. Your money is safe and sound and will be used as collateral as the insurance company loans you their money.* 

The interest rate on your loan will never be more than 6% from any of the insurance companies we work with. Some companies will remind you of the money you owe annually. Other companies will pre-charge you when you borrow cash value as a safety mechanism so your policy won’t lapse. Unpaid interest is added to the principal of the loans you take. Because of this, we do recommend that you pay the interest charge.

So yes, while you are charged interest that you should pay back when you take out a loan from your policy, that allows your premium deposit and all the money within your cash value account to continue to compound uninterrupted. This way, you always come out ahead! (Learn more about premium deposits in this article.)

When you’re ready to get started on creating your financial legacy or if you have more questions, most questions can be answered by watching this video. Start there and then schedule a consult with my team when you’re ready to begin.