policy loan from life insurance interest pay to insurance company! why?

Question

Any one can tell me, loan money from life insurance policy cash value intrest collect from the lisurance company, the cash value is my own money, should I paid intrest back to myself? not to insurance company

How about VUL life insurance policy, in the VUL cash value money is policy owner distribute to the policy and invest it in equtiy market, it make money on equity market, the gain will go back to the ploicy cash value,the cash value money should belong to policy owner, but when take out loan from policy cash value, the interest still going to insurance company?

Answer 1

Contrary to popular belief, when you take a loan out against your insurance policy, you are not borrowing “your money”.

You are borrowing the life insurance company’s money, and the life insurance company is accepting the cash value of your policy as collateral for that loan.

To meet the IRS definition of a loan, the insurance company must charge interest on the money you borrow from them.

This maneuver is necessary for tax purposes. If you were to access “your” money, the government would require that you make a withdrawal. If you made a withdrawal, you might be subject to taxation on the money withdrawn; you might be subject to surrender charges; and you might upset the stability of the policy’s financial funding.

Notice: what I wrote (above) still applies to your comments about variable universal life. You can invest your money (cash value); gains on your invested money belong to you; you have all the rights of using your money to invest as you see fit. You can do all these things with your money because you borrowed the life insurance company's money.

Answer 2

The money u loan from ur policy is actually from the policy holder's fund (PHF). Actually all the money u pay for the insurance company will fall in the PHF and the insurance company will use the money from there to do investement and gain interest to pay to all policy holder. So, if u loan the money from the PHF then u should bare the shortage of the total investment value. But don't worry, the rest of ur money in it will also gain the same interest as u pay back to the insurance company. In the same time u also ask ur agent's advise before u make the policy loan because ur agent will tell u how much u can loan ur money to prevent the lose of the interest.

Insurance charge u interest is actually protecting other policy holders from losing they interest that u withdraw money from the PHF. If u are the other policy holder then u will see the fair condition from the insurance company gave u. If u are in Malaysia, u can contact me if u need advise from this matter. Send me E-mail [e-mail].

Answer 3

If you took money out of your savings account, it's your money.

Money that you've put into a life insurance policy is your FUTURE money. In other words, the contract is based on paying out for one final claim. While you CAN choose to get a loan against that amount, the money that you're paying into the contract in the present is the insurance company's money.

They take that money you pay into premium and invest it. That's how they plan to pay for the final claim when the time comes. If you're taking money out of that contract, you're jeopardizing the ability of the company to pay for that future claim. So, you pay interest to make up for the interest that's being lost when you take the money out. And that interest that's being lost IS BEING LOST BY THE INSURANCE COMPANY. Thus, you pay interest to the insurance company.

Answer 4

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RE :Policy loan from life insurance interest pay to insurance company! why?
Any one can tell me, loan money from life insurance policy cash value intrest collect from the lisurance company, the cash value is my own money, should I paid intrest back to myself? not to insurance company
Update: How about VUL life insurance policy, in the VUL cash value money is policy owner distribute to the policy and invest it in equtiy market, it make money on equity market, the gain will go back to the ploicy cash value,the cash value money should belong to policy owner, but when take out loan from policy cash value, the interest still going to insurance company?
Follow 11 answers

Answer 5

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RE Policy loan from life insurance interest pay to insurance company! why?

Any one can tell me, loan money from life insurance policy cash value intrest collect from the lisurance company, the cash value is my own money, should I paid intrest back to myself? not to insurance company

Answer 6

did you know that when you buy a house, you pay the bank interest?! Did you know when you take out an equity loan, you pay the bank interest, and even though it is YOUR equity, you dont get it unless you pay someone else?

cash value is the equity you put into it.

Answer 7

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Answer 8

Yep, that's the way it works; those are the terms and conditions YOU agreed to when you bought that policy.

Answer 9

because it doesn't belong to you, even if you thought it was. read my profile and see what happen my husband's cash value.

Answer 10

I know you are not supposed to answer a question with a question, but, 'Do you still think it is your money?'