Automatic Premium Loan
Candlefocus EditorAutomatic premium loans are available for permanent life insurance policies, such as whole life and universal life. The cash value of the policy will be used to pay the overdue premiums, with the condition that the cash value must be equal to or greater than the overdue premium amount. The loan works like a policy loan, with a set interest rate and a set payback period of time.
The policyholder will repay the loan in full, including the interest rate, over the course of the loan term. When the loan is paid off, the cash value will remain intact and can be used in a variety of ways, such as as a source of liquidity in retirement or a way to save money on taxes.
When considering whether to use an automatic premium loan service, it is important to keep in mind that while the loan will keep the policy in force and allow the policyholder the ability to make lower payments over the course of the loan, it will also reduce the policy’s death benefit and the policy’s cash value. Furthermore, the interest rate for automatic premium loans will usually be above the rates for a traditional loan, so taking out the loan should be a carefully thought out decision.
If a policyholder needs to take out an automatic premium loan, it is important to understand the loan's terms and conditions, as well as the potential implications of the loan on the policy. Taking out an automatic premium loan can provide much needed relief and allow policyholders to keep their life insurance policies in force, but it should be approached with caution and careful consideration.