Policy loans are a prepayment, i.e. a loan, of insurance benefits from a life insurance policy to the policyholder. Colloquially, claiming a policy loan is also referred to as lending life insurance. If you want to avail yourself of such a policy loan, you have several options and providers, which we have compared in the following comparison.
Comparison of policy loan providers and their terms
An example of this: You need the money and do not want to take out a loan from the bank. In this case, there is an opportunity to take out life insurance. Such a policy loan has several advantages: low-interest rates, long terms of up to 25 years and your insurance cover remain.
Policy loans are usually term loans. Maturity means that only interest is paid at any rate during the term. The repayment is due in full at the end of the term and is usually paid from the life benefit (payment).
Policy loan in editorial test
After the question of whether to lend to policy has been clarified, the question of where usually arises. Which provider is the most consumer-friendly? To answer this question, we recommend our daily test. With six test categories and a total of 34 features, it is probably the most comprehensive policy loan test on the market.
Policy Loan – What Is It?
If you need a loan, your life insurance can alternatively be loaned. This can have many advantages. A policy loan is usually a term loan. This means that only the interest is payable each month, but not the repayment yet. This is only due at the end of the term.
The large final rate at the end of the term should, therefore, be taken into account. Think in advance about how to make this payment. Optimally, the term of the policy loan and policy is one date.
What are the benefits of a policy loan?
The main advantage is probably the low-interest rate. The loan is basically based on the premiums already paid by the insured. Therefore, no further security is required and there is no SCHUFA query. Anyone who has a mortgage life insurance can, therefore, use it as collateral for a policy loan.
Another advantage is the minimization of ongoing insurance costs for the borrower. Because despite a loan, almost every policy can be provided free of charge. Instead of the insurance premiums, the insured person then only pays interest and, if applicable, repayment installments for the policy loan. So if you do not want to save any more on life insurance, but do not want to wait until the agreed expiry date for the money saved in it, you can lend your life insurance and immediately set it free of contributions.
Current insurance costs can be reduced even further if only the interest is paid during the term of the policy loan and the loan is then offset against the life insurance maturity. So there is a subsequent repayment.
A final advantage, which should not be underestimated, is that life insurance protection against death is still available despite the loan. A big advantage over the early termination of such a policy.
An example of the benefits of a policy loan
Mr. Mustermann currently sees himself in a difficult situation. Another driver badly damaged his car at night without leaving a message. Unfortunately, his insurance does not cover the damage, but the car has to go to the workshop urgently, as he depends on the vehicle for work.
His financial situation is currently tense so that the liquid funds are not sufficient for the repair. But his life insurance has been going on for a while and the amount already saved is more than enough to pay the workshop bill. He does not want to separate from the insurance, however, because it is part of his pension scheme.
After comparing the various policy loans, Mr. Mustermann decides on a variant in which he pays interest and repayments according to a fixed plan and at the same time provides the insurance policy with no contributions. In this way, he compensates for the monthly installments for his policy loan and can pay his bill at the workshop without major problems.
Better credit opportunities for seniors
Policy loans are 100 percent secured because paid-in capital and no valuables with fluctuating market prices serve as collateral. In theory, this structure could make it easier for older people to get such a loan.
It is a certainty that can hardly be proven: it is harder for seniors to get a loan than is the case with younger people. Some may think now that this is in the nature of things and is therefore quite normal. At the same time, it must be stated that this is not what the legislator intended.
Services also include enabling financing. So lenders per se have no legal basis to deny applicants access to finance simply because they have reached or exceeded a certain age.
So much for theory. In practice, however, the consumer advice centers always come up with cases in which an apparently discriminatory rejection is at stake. The problem is: It is extremely difficult or almost impossible to prove discrimination.
If the bank declares that the age of the applicant did not play a role in the rejection, but other factors such as individual creditworthiness are the cause, the matter may have been settled. The reason for this is that no bank can be forced to disclose its valuation criteria in the lending business.