Question for the Money Doctors
Question submitted on Mar 7, 2014.
QuestionWith a universal life policy is it better to take out a loan or an advancement? If an advancement, will that reduce both the policy face value and the cash value?
Hi, thank you for the question. It is hard to say whether a loan or advancement is "better" without knowing the entire situation. What is better for one person may not be better for you. Yes, accessing the cash value of your policy will reduce the face value and cash value. The good news about using this route, is that you don't have to pay it back. However, it will reduce your death benefit, and you will deplete the case value in the account that may be used in the future to help pay premiums.
Taking a loan has good and bad points as well. You will not decrease your death benefit, but there are risks of taking a loan. My advice would be, if you are going to take a loan, plan on paying it back. Treat it just like any other loan or line of credit; it is not a "free lunch". This will keep you from having issues with your policy and potential tax issues down the road. I hope this helps.
For additional information visit http://www.360financialliteracy.org/