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I have a UIL policy that earns cash value. The policy cash value is barely 3000, only have had it for 2 years.

I have a death benefit value of 340k. I need 50k for school , can I borrow some cash value and the rest from my death benefit? Since there isn't enough in my cash value, can I brrow some from the death benefit?

Jun 24, 2014 by Jessica from Richmond, TX in  |  Flag
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You can borrow from the cash value, (usually up to 50% of the cash value) but your balance may be too low at this point to be able to effect this.

You can't access the death benefit unles your policy has a provision for doing so in the event of chronic illness or long term care. You can't do it for school expenses.

Comment   |  Flag   |  Jun 24, 2014 from Canton, GA

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Hello Jessica,

Unfortunately, you can only borrow from cash values, not from death benefit. And if you did, you'd need to make sure that any such borrowing didn't put the policy in danger of lapsing.

I'm curious what your actual life insurance needs are. Do you have debts that would need to be paid off, a spouse and/or children who'd need funds to replace your lost income, other obligations? If this policy was sold to you based on the concept that you could "be your own bank," it might be worth reviewing your financial situation to see if this is actually the right kind of policy for you.

Hope that helps.

Comment   |  Flag   |  Jun 24, 2014 from Clackamas, OR

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Joe Soto Level 15

Hello Jessica,

First, let me say that without knowing your situation it is hard to properly give you advice.

Second, you can generally never “borrow” from your death benefit but sometimes you can get an advance of part of it if you are terminally ill and the policy allows for it. (Always read the policy for the details.)

However, I would say that every Universal Insurance policy I have ever seen is BAD. I’m sure if we did the math you would find you have over paid for small return. As I’m sure you’ve seen by now. Fundamentally you own a policy where the cost goes up every year. When the cost is more then what you pay month to month the policy will take it out of the “cash value” as a loan. Universal Life Insurance will eat its self-alive leaving you less or maybe nothing at all.

I would talk to and advisor about replacing your UIL with a term policy and investing your money elsewhere to achieve the financial goals you may have. I will be happy to recommend someone in your area to answer any further questions.

2 Comments   |  Flag   |  Jun 24, 2014 from Burbank, CA
Wai Man Luk

'When the cost is more than what you pay month to moth the policy will take it out of the "cash value" as a loan.' That is incorrect. It will not come out from the cash value as a loan, but typically directly fund the cost of insurance, and perhaps other fees depending on the type of policy. For UL policy, consider the cash value as a reserve bucket, independent from what the cost of insurance. The cost of insurance is based on the insured's age, rating, and amount at risk (For option 2, that means death benefit minus the cash value. So if the policy cash value is low, the cost of insurance will be relatively higher.) Bottom line, life insurance policy's primary purpose is to provide leverage and create estate at death - there will always be associated cost with it. However, sophisticated designed and well-funded life policy can serve many purposes and compliment other assets one might have. I cannot recommend anyone to buy term insurance and invest the difference until I understand client's objectives and situation - similar to I cannot recommend any investment products without knowing the same thing.

Flag |  Jul 09, 2014
Joe Soto

Wai, Thank you for your feedback. I respect your input and if you like I will be happy to go over a real life insurance policy and show you how what I said is true.

Flag |  Jul 11, 2014 near Burbank, CA

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Hi Jessica,

I strongly recommend that you talk to a financial advisor about how to get this 50K for school and the appropriateness of the life insurance policy that you have been sold. As others have said, this life insurance policy is not going to fund any of the 50K you need, since the cash value is not there. But depending on your situation there can be other sources for these funds:

  1. Financial Aid.
  2. Home Equity Loan
  3. Borrow from 401K
  4. Student Loans

There may be others. Each source of cash has positives and negatives. A financial advisor can help you by explaining the pros and cons of your options.

I agree with the others that the Universal Insurance Policy may not be best, but its hard to exactly know without knowing more details about you. It depends on a number of factors. Even if you only bought it 2 years ago. Again, a financial advisor should be able to help you determine the benefits of keeping or terminating this policy.

Comment   |  Flag   |  Jul 01, 2014

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