Can I, As A Widow, Take A Loan Out On My Life Insurance Policy To Help Cover My Deceased Spouse’s Funeral Costs?
There are multiple options in this scenario, and you will need to consider which ones are available to you, as well as which one is best for you and your specific situation.
If you have a whole life policy, it is indeed, possible. These are permanent policies. However, you must have enough cash value accumulated before you are eligible to take a loan out of the policy. You must also be able to pay the loan back. Loans that are not paid back in full can affect your death benefit negatively by reducing it. For your beneficiary or beneficiaries, you will need to repay this loan in full for them to receive the entirety of the death benefits they would receive from you upon your death.
There is another option to cover funeral expenses, if you do not have the amount of cash value necessary accumulated or have a term policy. Term policies do not accumulate cash values over time, unlike whole life policies.
If this is the case, consider what is called a life settlement. This means that you will sell the ownership of the policy to an investor while receiving a one-time lump payment as a settlement for the policy. This is not the right option for everyone. There are drawbacks to it. Upon your death, your heirs will no longer be the appointed beneficiaries to receive the payments from the settlement and the beneficiary’s name on the policy is changed. It is no longer yours.
These settlements, life settlements, are not the right solution for everyone. Make sure to fully understand a life settlement before choosing this option.