I Just Don’t Get It.
I just don’t get it. Say you have an insurance policy. You have been paying the premium for a good number of years. Say you suddenly need money. You have a few options, two of them:
1. Terminate the policy and get as much money out as possible.
2. Take a loan from the insurance company at 8% interest.
Now, the amount of money you take out is equal to the amount you have initially put in. I don’t get why I am paying interest to use my own money. Ok. I think I get the marketing spill - I’m still covered. The policy isn’t prematurely terminated so I still have the chance that when it matures, I make ‘obscene’ amount of gains.
But I don’t buy the argument that this is the same thing when you take a loan from the bank.
It isn’t.
Usually when you take a loan from the bank, the amount is significantly greater than the amount you have deposited with the bank. You are taking a loan for an amount of money you don’t have yet.
With taking the loan from the insurance company, what is happening is you are taking out the same amount of money you have already put into the policy in the hope for large amounts of money in the future. The future is never a guarantee.
I understand and appreciate the need for insurance. However, if you have more than 1 insurance policy, I think it might make sense to close one of them and take a one time penalty instead of a yearly recurring penalty in the form of interest.
Sometimes I wonder about the advice FAs dispense.
