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Borrow money on an insurance policy or sell it

Bridging financial gaps by lending money on an insurance policy

Life insurances are still one of the most common forms for retirement saving schemes. They are supposed to close the gap between pension and pre-retirement wage and usually require payments for some decades. However, the longer a life insurance runs, the harder it is to know one´s financial future. Sudden unemployment or long phases of sickness are only two reasons that may make it necessary to terminate retirement provisions. It is even more exasperating that an early termination always means losing money for the insurant.

When agreeing to an insurance policy, the company calculates all costs over the life-span of the contract. The earlier the insurant terminates the contract, the higher are his financial losses. If the minimum duration of the contract has not been met yet or the age for claiming the money has not been reached, taxation may become an issue. All premiums that have been paid are only in parts repaid. An alternative to terminating a contract is to lend money on a life insurance policy. Basically, this means getting a down payment on the money that can later be claimed from the insurance. This down payment is limited to the redemption value, i.e. the amount of money that would be paid if the contract was terminated now. It is fairly easy to understand: The money is paid by the insurance company while the company gets a certain interest rate. These rates will vary for every insurance and should be known before applying for the loan. The loan is either repaid while the contract is still running or when the contract runs out. The advantage of such a loan compared to an early termination of the contract is that the insurance contract is still valid, the insurant or his family are still protected. Moreover, the interest rate is lower than for a regular consumer credit and the date for the repayment can be set according to one´s own wishes. The only disadvantage is that such a credit can only be handed out for an endowment ensurance. A simple term life insurance is not enough as money will only be paid in case the insurant dies. In case of a financial hardship, it may be worth to check the regulations of the respective insurance company before terminating or selling a life insurance. You should talk to your insurance company as the company will be interested to keep up the current contract, therefore it is likely to get a decent offer.