Borrowing against your life insurance is risky business. Unless you have a bona fide emergency or a certain way to repay it, I recommend against it. If you borrow against it to pay off your house or to buy a new one, check the interest rate for repayment before you do.
Borrowing against life insurance reduces the worth of the cash value of the policy until it is repaid. It also reduces the growth rate of the value because money that is not there can’t earn interest and grow. The interest that you pay when you repay the note normally goes to the insurance company and not your account. You see, when they don’t have your money they lose income, too. So, charging you interest to borrow your own money helps them recapture that lost revenue.
Most people would do better to cash out the policy than to borrow its contents. The only problem with cashing out is that your health could be too poor to qualify for another policy. The premium could also increase significantly if you’ve held the policy for many years. However, if you borrow your equity and then die, you risk dying without enough assets to cover the expenses your survivors will face.
Think twice and then think two or three more times before borrowing against your policy. Make sure you have the ability and willpower to repay it quickly. Consider the potential consequences of your actions before you borrow the money.