Aflac primarily sells supplemental insurance policies. However, you can also purchase ordinary whole life insurance from Aflac. Whole life insurance from Aflac protects your family from your debts after you die, allowing your beneficiaries to pay for your funeral and burial costs as well as other debts that you may have incurred during your lifetime. Like other forms of whole life insurance, the policy also builds cash value that can be borrowed against.
Identification
Whole life insurance from Aflac is a permanent life insurance policy. The policy's death benefit carries out life insurance protection until you reach age 100. The policy builds cash value, which distinguishes it from Aflac's term life insurance with return of premium policies. Premiums are level for the life of the policy and are payable for your whole life.
Function
Policy loans are taken against any available cash value in the policy. Cash value builds inside of the whole life policy, as a result of the insurance company investing your premium payments into bonds and bondlike investments. As the cash becomes available in your policy, you may take out a loan against the value of the cash value. The insurer will send you a check for the amount of the loan and reduce the available cash value by an equal amount. There are no loan applications and no approval process to go though.
Benefit
The benefit of borrowing from your Aflac policy is that you gain access to money when you need it. You can use these funds for any purpose and you don't need to pay back the loan until you die. At that point, the insurer subtracts any outstanding loans from the death benefit and pays the remainder to your beneficiary.
Disadvantage
The disadvantage of borrowing from your Aflac policy is that loans accumulate interest, which is charged to the cash value of the policy. If the cash value ever drops to zero because of the loan interest decreasing the policy value, or if you borrow too much from your policy, it will lapse. If this happens, all of the gains in the policy become taxable as ordinary income. A gain in the policy is realized when the cash value exceeds the total premiums paid to the policy. The amount in excess of the total premiums paid is the gain.
Considerations
Keep track of your outstanding loans. Even though you don't have to pay them back, consider paying them back anyway on the insurance company's recommended payback schedule. This will prevent your policy from lapsing.
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