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You are here: Experts > Money > Personal Insurance > Life & Health Insurance > Collateral Loan against Term Life Insurance Policy
Life & Health Insurance - Collateral Loan against Term Life Insurance Policy
Expert: Willard R. Brumbaugh, LUTCF, CSFP - 10/27/2009
Question
I am in need of a loan, and contacted my life insurance company. While my policy is a "term" insurance, I was told I could use my policy as collateral at my bank. The bank I deal with says they never heard of such a thing, and could not direct me to the right institution. Would you have any idea where I could go???
Thank you,
Answer
Dear Ruth,
Whoever told you that you could use a Term policy for collateral for a loan did not know what he or she was talking about. Term policies almost never have any surrender value. Even those that do are calculated to run out of surrender value at some point.
Therefore there would be no interest by any lender to rely on the policy as guarantee that the loan would be backed in case of default of the loan. There would have to be some other assets that would be callable. The Term policy would only have such value in the event of the insured's death.
Willard R. Brumbaugh, LUTCF
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