Borrowing from your life insurance policy

If you own a whole life policy or other type of life insurance policy that has a built-up cash value, you can normally borrow against that balance. Your life insurance policy may also have a clause or a rider in it that allows you, under certain conditions, to receive an accelerated death benefit. Usually, you have to be chronically ill or terminally ill, and have a very short life expectancy, to qualify for this type of loan from your life insurance company. An accelerated death benefit pays you out of your death benefit and thereby reduces the amount that will be available to your beneficiaries upon your demise. You usually have the option of receiving funds in a lump sum or spreading out the proceeds of the accelerated death benefit over the remaining time you have left in life. You do not have to take your entire death benefit early and any part that you do not touch will be there for your beneficiaries after you die. You may run into trouble if you try to exercise this option for one of two reasons. First, you may not be as close to death as you need to be to qualify. Second, your policy may not allow an accelerated death benefit, either because it was not part of the original contract, or, a rider, adding such a provision, was never added to the policy.