In the event that you die with
policy loans outstanding, your insurance company will deduct the unpaid amount plus any accumulated interest from your death benefit.
2 Guaranteed Death Benefit will terminate if there is
a policy loan outstanding and the total indebtedness equals or exceeds the cash surrender value.
Not exact matches
There are no taxes if you take out a
policy loan, so long as the
policy remains in effect (meaning the
outstanding loan and interest don't exceed the cash value).
In terms of taxation, the excess of the cash surrender value of the
policy (plus any
outstanding loans) over your basis in the contract is treated as taxable income.
And if a
policy lapses with an
outstanding loan in excess of the cost basis, it's taxable.
This
policy can be particularly useful if you have a particular
outstanding expense or
loan, such as a mortgage
loan which would be reduced over time, that your family couldn't cover payments for without your income.
Part of the strategy is to work with mutual life insurance companies that allow flexibility in borrowing from the
policy and allow the cash value to accrue regardless of
outstanding policy loans.
There are no taxes if you take out a
policy loan, so long as the
policy remains in effect (meaning the
outstanding loan and interest don't exceed the cash value).
You might choose a decreasing term
policy for a similar term length and initial death benefit equal to the
outstanding mortgage
loan, since you know your spouse will be financially stable once the mortgage is paid off and you know the time it will take to pay back the
loan.
In addition, you don't have to pay the annual interest so long as the total
outstanding loan (original
loan plus accumulated interest) doesn't exceed the
policy's cash value.
Now, it's typically to your benefit to pay back a
policy loan in a timely manner as the interest compounds annually and the
policy will lapse if the
outstanding loan gets too large.
Plus, if the total
outstanding loan reaches the size of your
policy's cash value, the
policy will lapse.
When a
policy lapses, you not only lose your coverage but also will have to pay income taxes if the
outstanding loan is greater than the amount you've paid in premiums.
Another reason to pay back the
policy loan is that the total
outstanding balance would be deducted from the death benefit your beneficiaries received if you passed away.
Outstanding loans and withdrawals, however, will reduce
policy cash values and the death benefit, and may have tax consequences, so talk with your agent about the pros and cons before taking a
loan out on your
policy.
Outstanding loans accrue interest, reduce the
policy's death benefit, and increase the chance that the
policy will lapse.
On the other hand, if you've just purchased a home with your spouse, you might consider a decreasing term
policy (since your mortgage balance decreases over time as you pay it off) with a death benefit equal to the size of your
outstanding loan.
If your
policy has a large
outstanding loan and you will have difficulty repaying it to avoid a lapse, it might be better to use the remaining
loan balance to purchase a reduced paid - up
policy.
Even if there is an
outstanding policy loan, AUL continues to pay the same dividend on the cash value.
With a non-direct recognition life insurance company, the payment of dividends is NOT reduced or negatively impacted by
outstanding policy loans.
Decreasing term
policies pay out less as the the
outstanding balance of a mortgage
loan is paid off.
This
policy can be particularly useful if you have a particular
outstanding expense or
loan, such as a mortgage
loan which would be reduced over time, that your family couldn't cover payments for without your income.
Guardian practices direct recognition, which means the company adjusts the dividend paid to participating policyholders when there is an
outstanding policy loan.
The
policy has no
outstanding loans or prior cash withdrawals, and an accumulated cash value of $ 5,000.
If you have an
outstanding policy loan, your dividend can be used to pay down all or a portion of your
loan.
When there is an
outstanding policy loan, Ameritas pays the dividend based on the cash value that is not being used as collateral for the
loan.
If you have an
outstanding loan on your whole life insurance
policy when you die, the death benefit that is paid out to your beneficiary (or beneficiaries) will be reduced by the unpaid amount of..
To conclude on the amount of life insurance
policy you should buy, I will say that you should endeavour not to go below the amount that will cover your funeral expenses, repayment of your
outstanding mortgage or other
loans and your family living expenses.
Suicide Clause: A life insurance
policy provision that states if the insured dies by suicide within a certain period of time from the date of issue (usually two years) the amount payable would be limited to the total premiums paid minus any
policy loans or
outstanding premiums.
If, for some reason, you decide to surrender the
policy, you would not receive your premiums back, but you would receive the cash value, if any has accumulated, minus any surrender fees and any
outstanding loans plus interest.
2 The adjusted total premium is the initial single premium plus any underwritten increases, less any partial surrenders and any applicable surrender charges in excess of
policy gain and any
loans and accrued
loan interest, The death benefit guarantee will not apply if the sum of any
outstanding loans plus accrued
loan interest is greater than the
policy's cash value, The death benefit guarantee will not apply if the sum of any
outstanding loans plus accrued
loan interest is greater than the
policy's cash value.
Keep in mind that
loans against the
policy will accrue interest and decrease both death benefit and cash value by the amount of the
outstanding loan and interest.
Outstanding policy loans and interest will decrease the death benefit.
You need a life insurance
policy that will cover
outstanding balances, especially if a loved one is a co-responsible party on a
loan, credit card, etc..
The other important thing to remember is that any
outstanding loan amounts will be deducted from the death benefit that is paid out if the
policy holder passes away.
If the
policy is in force at the time of death, the employee's named beneficiaries will receive the death benefit, minus any
outstanding loans, free of income tax.
It's important to note if you take out a
loan on your whole life insurance
policy and die while the
loan is out, the death benefit may be used to pay back the
outstanding amount, meaning your beneficiaries won't get the full amount.
As a result, the dividend received when there is an
outstanding policy loan will be less for direct recognition companies than those that practice non-direct recognition, such as MassMutual.
The 401 (k) treatment of
loans prohibiting sharing in gains is in direct contrast to the advantage of borrowing from a mutual company offering a participating whole life insurance
policy which will continue to pay dividends at normal rates regardless of
outstanding loans.
Second, if a
policy lapses or is surrendered with an
outstanding loan, and the amount of the
loan plus the cash surrender value is more than the sum of premiums paid, the excess will be taxable.
Penn Mutual practices direct vs. non-direct recognition when calculating dividends if there is an
outstanding policy loan.
Non-direct recognition refers to a whole life insurance company that does NOT alter its dividend rates based upon
outstanding loans taken by the
policy owner against the
policy cash value.
However, if your
policy lapses and you have an
outstanding policy loan, it could result in a taxable event.
The amount of money paid or due to be paid when a person insured under a life insurance
policy dies, after adjustments for any
outstanding policy loans, dividends, paid - up additions or late premium payments (if applicable) are made.
However, be aware that there is a potential taxable gain if your
policy lapses or is surrendered while an
outstanding loan exists.
Unpaid
loans will reduce the cash value and death benefit payable, and if the
policy lapses with a
loan outstanding, it will be treated as a distribution and may be subject to income tax.
If you do have a
loan outstanding on such a
policy at the time of your death, this
loan reduces the benefit amount to a beneficiary.
This insurance
policy is specially designed to help creditors avoid bad debts by taking care of any
outstanding balance should a borrower pass on, or be unable to repay a
loan in full.
When activated, the Overloan Protection Rider converts the
policy to a «paid - up» status and prevents the
policy from lapsing when the
policy's cash surrender value is insufficient to cover monthly deduction charges due to significant
loans or if any
outstanding loans plus accrued interest exceed cash value.
Any
outstanding debts such as mortgages, auto
loans, and the like should be paid off as well by the
policy.