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Lending money to yourself through insurance loan



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Do you need cash? It may sound odd but you can lend money to yourself. Life insurance loan allows you to do so. Before you dismiss this as yet another click-bait article, I want you to keep an open mind and read on. Because this strategy may be extremely useful in your wealth building journey.

In various stages of life, we may face cash flow problems. Sometimes the money woe may be due to a loved one incurring unforeseen massive hospital bills due to an accident or it could be the purchase of a big-ticket item like a new house which requires substantial hard cash for down-payment and renovation expenses.

Whatever the case, we are likely to encounter phases of life whereby we may need some financial help. In this article, I would share how you can lend money to yourself through insurance loans.

As a general principle, I would not encourage readers to borrow unnecessarily. We should all live within our means. But recent events made me realize the vulnerability of many low-income families in Singapore. I read an article of a security guard who suffered from a massive heart attack and thereafter struggled to pay hospital bills amounting to a staggering $78,000. Faced with such financial disaster, it is difficult to imagine how the poor and needy can crawl their way out of the holes without financial aids.

Insurance loan

According to Ministry of Law’s Insolvency Office, 1253 bankruptcy orders were made in Singapore this year. This is an average of about 140 people being made bankrupt per month. You would want to avoid bankruptcy because there are a lot of restrictions and you may also face difficulties in looking for a job. In Singapore, being a bankruptee is also a mark of social disgrace and the stigma is incredibly huge.

But then again, Singapore is a dog-eat-dog society where the mindset is one of “every man for himself”. The overall social climate is very cold and unforgiving. In fact, trying to obtain financial aids from the government can be extremely difficult because of the annoying stringent criteria to meet. But sometimes, you just need some form of temporary financial assistance to cross that hurdle in your life. Your friends and family also may not be able to extend help as they may also be struggling with life as well.

Beyond giving the poor and needy a fish, it is more important to teach them how to fish. Life insurance offers not only financial protection, but can also provide loan in the form of cash to tide you over in times of emergency. Therefore, insurance can be really useful asset that may help you to ride out financial storms in your life.

I think many people are not aware of this feature of insurance policy. I was not aware of it too until I vaguely recalled my insurance agent telling me about this feature many years ago. And boy, it was a really godsend advice because in 2011, I faced the biggest financial challenge in my life when I married the love of my life.

Starting my own family had been an exciting journey for both my wife and myself. We agreed that she would pay off her university loan with her savings and I would handle all the wedding expenses, housing payments, renovation costs and furnishing costs. We also agreed that she would quit her job and be a full-time housewife. Fundamentally, I am quite old-school and would prefer my wife to be a stay-at-home mom and focus on raising our children.

The first year of marriage was financially challenging as I realized that my meagre salary could not meet ends meet in the face of car loan, furnishing loan, renovation loan and living expenses. As I struggled with the mountain of bills, I recalled that I had three life insurance policies. I also recalled my agent telling about the insurance loan feature. With that in mind, I found out through my online account that the cash value in my three policies built up over the last ten years had accumulated to a substantial amount. So, I decided to lend money to myself through insurance loan.

Basically insurance loan uses the cash value in the life insurance policies as collateral. It is a form of secured loan and the interest rate is very low – at 5.5% per annum. Compared to credit card interest of 24% per annum, insurance loan is definitely more attractive.

Another advantage of insurance loan is that there is a lot of flexibility in the repayment schedule. You may make a full or partial repayment towards your policy loans. There is no fixed repayment amount. You may even choose not to return the loan but at any time the amount of the loans and interest is more than the cash value, the policy will cease.

Another thing I like about insurance loan is that there are no questions asked and the loans don’t show up in the credit report. In fact, when I took the insurance loans against my three policies, the whole process only took 15 minutes. The money got transferred into my bank account within three days.

You may even choose not to return the insurance loan. However, when the loan, coupled with the annual interests, exceeded the cash value, the insurance policy would be terminated. Thus, it is important to monitor the loan repayment closely. When I took the insurance loans, I made it a point to do monthly partial repayments to avoid having my policies being terminated.

Gold bullion

Somehow, after my elder daughter was born, my financial situation magically turned for the better. In fact, with my bonuses, I managed to pay off all the outstanding loan instalments and even my insurance loan within 2 years. I had also right-sized from a 5-room to a 3-room HDB flat.

This is an unglamorous part of my wealth building journey. But do I regret going through this nightmare? Absolutely not. Because this episode had made me even more resilient and taught me to be wiser in my personal financial management. This experience had also reinforced in me the importance of having a portfolio of term and whole life insurances.

Many people dismiss the value of having whole life insurances because of the low protection coverage.  But I feel that this could be mitigated by having term life policies as supplements. Furthermore, the cash value accumulated over the years could serve as emergency fund.

In life, never say never. Sometimes it never rains but it pours. I hope that you have become more empowered in managing your money after reading this article. Join me in my wealth building journey by subscribing to my blog for free.

Read my other related articles:

  1. Is gold a long-term insurance?
  2. Understanding the Difference Between Critical and Terminal Illness for Insurance
  3. Health Insurance
  4. Insurance: Blood in Urine
  5. Traded Life Insurance Policies in Singapore

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SG Wealth Builder

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Updated: October 26, 2017 — 7:17 am

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