The perks of these loans include tax benefits, easy access to cash, and no strict credit requirements. However, these loans come with risks, such as reduced payouts to beneficiaries or the probability of policy cancellation if the loan is not repaid.
“The insurance industry often uses these types of sales and sometimes positions insurance as a tool, which it is not intended for, - says Colin White, portfolio manager and CEO of Verecan Capital Management in Dartmouth, Nova Scotia. - If your goal is to generate capital, you don’t want to take a chance on a life insurance policy.”
A new study from the Life Insurance Marketing and Research Association (LIMRA) and Life Happens proves that 57% of Canadian adults have life insurance in 2024.
The main types of life insurance are term, whole, and universal life insurance.
Term insurance lasts for a specified period of time, usually 20 or 30 years. Universal and whole life policies last lifetime and pay death benefit. These two types of policies have a surrender value, which is often used for lending.
Surrender value is the amount you will receive if you cancel your policy.
“Financial institutions can grant a loan in the size from 50% to 90% of the surrender value of the policy,” says Ian Calvert, vice president and general partner at HighView Financial Group.
Photo courtesy of public sources
