Should You Borrow Against Your Insurance Policy?

Should You Borrow Against Your Insurance Policy?

Many people ask me this question via e-mail. When we are in acute money emergency, we think of borrowing money against our life cover.

In India, the banks give you a loan against your life insurance policy of 90% of its surrender value at the rate of 9% per annum. So Is it a wise decision to take a loan against your insurance ?

The Simple answer of this question is – NO.

It is not at all advisable to borrow money against your insurance policy. Well, see the insurance policy is not for the purpose of raising money in emergency but it is for the purpose of protecting your life.

So What to do?

Well, you should build an Emergency fund for such kind of purposes. An Emergency fund is 6-12 months of your monthly expenses. So in case of real financial emergencies, you can use this emergency fund and protect your long term investments from liquidating and protect yourself from borrowing money against your insurance policy.