Interest on a Loan from a Variable Life Insurance Policy

Q. How much interest do I pay to take a loan from a variable life insurance policy?

A. Just like other types of permanent life insurance policies, you can take a loan from the cash value of a variable life insurance policy. Depending on the issuing insurance company, you could take a loan of up to 90 percent of the cash value that is in the policy.

Because the loan will reduce the amount of available cash value in the policy, however, it will also reduce the amount of death benefit. While taking a loan is not considered to be a taxable event, you will be charged interest on the amount that you borrow. This interest rate may be either fixed or fluctuating. Typically, the insurance company will charge interest on loans at a rate that is a few percentage points higher than the return you receive in the policy’s fixed account.

Related topics:

The Advantages and Drawbacks of Variable Life Insurance
Borrowing Funds from a Cash Value Life Insurance Policy
Borrowing Life Insurance Policy Loans

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Susan Wright holds a BA from Michigan State University and an MBA from St. Louis University. Having over 20 years of working experience in the insurance and financial services industry, she has trained more than 10,000 financial services representatives. Susan has had licenses in real estate, insurance, and NASD Securities, and she has earned nine industry professional designations, including CLU, ChFC, RHU, REBC, CSA, CLTC, CCFC, CSS, and ADPA. Read more about her on Google+

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