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Policy Loan: Why pay interest when borrowing your own money?

Time: 2017-01-09         Source: Insurance niche         Author: Insurance niche

After many people have some understanding of insurance, they know that many policies have the function of policy loans. They can reinstate their policies and realize them quickly. However, if they are borrowing their own money, why pay interest?
 
Here are two reasons to illustrate this problem.
 
One: When collecting premiums, the insurance company assumes that the assets generated by the total net cash inflow of the policy will be used for investment and interest. The insurance company anticipates these interest income and pre-converts (decreases) the premium. If the policy owner (through the policy loan) extracts their share of the shares from these assets, and the insurance company does not charge interest on the loan, the insurance company's assumptions about the future earnings of these assets cannot be achieved. If the insurance company does not charge interest on the loan, then it should not convert the premium for the future total investment income. The end result of this will be a significant increase in premiums, and of course, the policy owner will not have to pay interest on it.
 
  Second: the policy loan is essentially a kind of borrowing behavior in which the policyholder uses the cash value of the policy as a mortgage to lend to the insurance company.Many people mistakenly express this right as “the cash value of the insured policy”, which is misleading and wrong. Policy owners cannot borrow their cash value, and some use the policy cash value as a loan guarantee to borrow from an insurance company. Just like we have a house, we can live. When we use cash urgently, we can use the house as collateral to get loans from the bank. At this time, we also need to pay interest, and it does not affect the right to live in our house. Similarly, the policy loan period does not affect the policyholders' benefits, such as guarantees, dividends, etc. In the event of an insurance accident during the loan period, you can still apply for a claim, and the actual payment of the insurance premium = agreed payment insurance - policy loan - loan interest.
 
Therefore, the policy loan is not actually borrowing its own money. What are the benefits of the policy loan?
 
1) Urgent need for capital turnover, the use of policy loans, to avoid losses caused by surrender, does not affect the rights and interests of the policy.
 
2) The procedure is simple, no credit review is required for the borrower, and no loan use is required.
 
3) The interest on the loan is calculated on the basis of “days”. After the loan is due, it can be renewed. It can only repay the interest, not the principal, and reduce the repayment pressure.
 
4) The loan rate is fast and the interest rate is low.
 
At present, policies that can be loaned on the market generally can be 70%-95% of the cash value of the loan policy. Nowadays, as people's awareness of insurance deepens, more and more families purchase insurance. Insurance has become an important part of family assets. Correctly understanding the characteristics of these assets will enable us to use our accumulated knowledge more fully and reasonably. wealth.

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