October 12, 2015 in Insurance

Dear Insurance Adviser,
We purchased life insurance policies for minor-age grandchildren, and we pay the premiums. Are we able to borrow against these whole life policies?
— Cindylou

Dear Cindylou,
Yes, as the “owners” of the policies, you and only you have the right to borrow from the cash value — the reserve that builds up in permanent life insurance, such as whole life.

This is a good example of the 3 players in a life insurance policy:

  • The grandkids are the persons insured.
  • Their parents (your children) are probably the named beneficiaries.
  • You, the grandparents, are the premium-payers and owners of the policies.

Before you borrow, understand that any payout would be reduced by outstanding loans. For example, let’s assume each child is covered for $10,000. If 1 of them died and you had a $1,500 outstanding loan, the death benefit would be reduced from $10,000 to $8,500, less any unpaid interest.

Good luck.

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