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Policy Loan: Why borrow money to pay interest?

Time: 2017-01-06         Source: Insurance niche         Author: Insurance niche

Many people know about the beginning of the insurance, I know that many of the original policy there are insurance policiesloanFunction, you can revitalize the policy, quickly realized, but the policy loans, borrowed their own money, why pay interest?
 
Here are two angles to illustrate this issue.
 
A: At the time of premium collection, the insurer assumes that the assets generated by the net cash inflow from the policy will be used for investment and generate interest. Insurance companies expect these interest returns and pre-discount (lower) premiums. If the policy owner (through policy loans) extracted from these assets in proportion to their share, and the insurance company does not charge interest on the loan, then the insurance company's assumptions about future earnings of these assets will not be realized. If the insurer does not charge interest on the loan, it should also not discount premiums for the total return on investment. The net result of doing so will be a substantial increase in premiums, and of course, policyholders do not have to pay interest.
 
  Second: the policy loan in real terms refers to the insured person's cash value of the policy as a mortgage loan to its insurer a borrowing behavior.Many people mistakenly denote this right as "using the cash value of a policy," a wording that is misleading and wrong. Policyholders can not borrow their cash value, and some have the option of borrowing money from an insurance company at a policy of cash value. Just as we have a house, we can live, when we urgently cash, we can house as collateral to obtain loans from the bank, then we also need to pay interest, but does not affect our right to live in the house. Similarly, the policy loan period will not affect policyholders enjoy policy benefits, such as security, dividends and so on. In case of insurance accident occurred during the loan period, you can still apply for claims, the actual payment of insurance = agreed to pay insurance - policy loans - loan interest.
 
So, policy loans are not actually borrowing their own money. What are the benefits of policy loans?
 
1) Urgently need capital turnover, the use of policy loans, to avoid the surrender losses, does not affect the insurance policy should have the rights and interests.
 
2) The procedure is simple, there is no need to credit the borrower and do not need to specify the purpose of the loan.
 
3) Loan interest is calculated according to "day". Loan can be renewed upon expiration. Only interest can be paid, non-repayment of principal and repayment pressure can be relieved.
 
4) Loan fast, low interest rates.
 
At present, the loans available on the market can generally cover 70% -95% of the cash value of the policy. Now, with the deepening of people's awareness of insurance, more and more families to purchase insurance, insurance has become an important part of household assets, correct understanding of the characteristics of these assets will enable us to more fully rational use their accumulated wealth.

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