ANDprotects your loved ones in the event of your death. It does so by paying a predetermined amount to replace the policyholder’s income.
if you haveyour policies are delivered with that you pay over time. You can then withdraw this cash and use it for various purposes, including paying off debt.
If you are looking for life insurance or want to change type, you need to include a cash option, now is the time to act. You can get a quote now.
Here’s how to use your plan to pay off debt.
How to use life insurance to pay off debt
Using your life insurance policy to pay off debt can save you hundreds or even thousands in total interest. This only applies to policies that gain cash value, such as whole or universal life insurance. Consumers withthey do not accrue cash value and therefore cannot withdraw any money from their policy.
However, if you have whole life insurance, withdrawing money through your provider can be easier than going to a bank or credit union. This is because there is no credit check for obtaining funds. And you will have more generous repayment terms. Just be aware that whatever you end up owing will eventually be taken out of your death benefit.
You may also owe taxes on the amount you withdraw, depending on how much you withdraw. For example, if your cash value generated dividends, you may owe taxes if you withdraw those dividend payments from your policy. You can usually withdraw money up to the amount you’ve already paid for your premium without paying taxes.
Talk to your life insurance agent to determine exactly whether you will owe taxes on the cash value amount.
The benefits of using life insurance to pay off debt
- You may be able to pay less overall interest by paying off the debt early
- You can lower your debt-to-income ratio
- You can free up more money for saving and investing
- You don’t have to pay it back
Disadvantages of using life insurance to pay off debt
- By deducting part of the cash value later, you will reduce the death benefits
- You might pay withdrawal fees (a fee for withdrawing money within a specified period, usually in the immediate years after opening a new account)
Do you think you would benefit from cash out insurance? There are multiple providers that can help find the plan that’s right for you.
Other debt relief alternatives
Not sure if you want to use the cash value of your life insurance policy? Here are some other debt relief alternatives.
Debt Consolidation Loan
ANDYippee that can help you pay off debt. You may also be able to pay off multiple loans with a debt consolidation loan so you are only responsible for one payment.
Interest rates on debt consolidation loans vary depending on your, and the total amount of the loan. Typical interest rates for debt consolidation loans range from 6% to 20%.
Terms for personal loans range from two to seven years. Longer terms have higher interest rates and lower monthly payments, while shorter terms have lower interest rates and higher monthly payments. Choose a term with a monthly payment that you can easily afford.
Balance Transfer Credit Card
If you have credit card debt, you can open awith 0% APR and transfer your current balance to this card. Card companies will offer 0% APR for a limited time, usually between 6 and 21 months.
If you can pay off the balance before this offer expires, you could save hundreds on total interest. Once the offer expires, the interest rate will switch to a higher rate depending on your credit score and other factors. Most cards charge a balance transfer fee, usually around 3%.
Refinancing existing loans to a lower interest rate can help you save. If you have a loan with a high interest rate, refinancing it can help you lower your monthly payments and reduce the interest you would pay over the life of the loan. The refinance rate environment has changed in recent months, but you can still benefit refinancing your mortgage or student loan.
If you end up using the accumulated cash value to pay off the debt, make sure you consider how this will affect your family’s life insurance needs. If you’re retired and no one is relying on your income, then you probably won’t need to buy a policy because you’re self-insured.
But if you’re still working, have a family and have existing mortgage payments, you should find out what coverage you need and how to top it up if your cash value is depleted or reduced. You could buy a term life insurance policy still have life insurance coverage while paying lower monthly premiums.
It helps talk to an insurance professional who can help guide you to a plan that works for you and your financial goals.