Borrowing money to finance life insurance premiums an 'over-sold' concept

Oct 10, 2011

Borrowing money for life insurance may not be for everybody.

Richard Harris, a life insurance professional who manages Richard L. Harris LLC, said in an article on Wealth Strategies Journal that while there are merits to buying life insurance by borrowing money to pay premiums, it is an over-sold concept. He said before signing up, individuals need to check to see if it would work for them specifically.

He said there are a number of basic things that need to be looked at before signing up with this kind of life insurance, including the amount of the loan, its renewability, the interest rate, the guarantees and the collateral.

Harris writes there are lessons that need to be learned about life insurance, as it's a complicated issue that not everyone understands. He said potential buyers need to make sure a policy is needed and ask for illustrations from salesmen showing high interest rates. People should also ask for illustrations based on low projected crediting rates and get a side-by-side and year-over-year comparison, as the "we are the experts, trust us" pitch should not work.

Lewis Saret writes on Forbes about Harris' article saying most individuals sold on this kind of financing do so for the benefits of getting "free" life insurance, but said the true consequences can be hidden. According to Saret, the overarching advice of the story is to avoid getting stuck in a sales pitch of a salesman who often only quotes overly-optimistic numbers.

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