Expert: Joe Montgomery - 4/28/2007

Question
Hello Joe!

I am your typical credit-rating challenged and desperate consumer looking to re-establish my credit standing by applying for a secured loan.  I have a couple of issues that stand in my way though; I rent and I am still financing my car.  

I have a $150,000.00 Life Insurance policy and read somewhere that some financial institutions allow policies as collateral for loans.  Is this true?  If so, what channels would I take to reach out to these institutions? I am looking to consolidate my debt with this loan if its possible.

Thanks!

Answer
Some lenders will, but to be honest, this is not a common practice.  Additionally, this has to be a life insurance policy that has a cash value if it were to be turned in or "cashed out".  As an example, I have a $500,000 policy, but it has no actual cash value unless I die.  Depending on the type of life insurance you have, your policy may carry a $5,000 or even a $75,000 cash value, but that's only if it has been paid for in full, or if you have a Universal, or whole term policy.  I would recommend calling the holder of your policy before you call a bank with this as collateral.  If it does have a cash value-- give it a try, it may work out for you.