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?
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.
Ask the adviser