Use A Life Insurance Policy For Better Debt Management

Everyone wants to be debt free since debt is a curse. When your debts start getting out of control, nothing can be worse than that. Accumulating excessive debt can become a hindrance to your path towards debt freedom. This is the time when you need debt management tips or the assistance of a financial advisor to get out of debt. You may be surprised to know that life insurance policies can help you handle and pay off your existing debts. How is it possible? The following details will help you understand.

How do life insurance policies help you manage your debts?

There are some life insurance policies that can help you with managing your debts efficiently. You can tap your life insurance, borrow from it or go for a life insurance settlement:

1) Borrowing from your life insurance policy

If you have a whole life insurance policy, you can borrow from it if it has already accumulated sufficient cash value. However, you can’t borrow more than 90% of the accumulated cash value.

2) Opting for a life insurance settlement

A life insurance settlement refers to the selling of a life insurance policy in lieu of a one time cash payment. If a policyholder faces a financial crunch, he might opt to sell his life insurance policy to a third party. This way, the ownership rights are transferred to the buyer. The buyer gives the policyholder a lump sum payment in exchange for the life insurance ownership rights.

3) Tapping your life insurance

Obtaining a cash surrender loan is a good option if you have a whole life policy with adequate cash value. The policyholder receives a certain amount of money when the policy is terminated.

So how do these above mentioned techniques help you with your debt management plan? These techniques can help you fund your debt management plan (DMP) by helping you establish a cash flow. You’ll then be able to send a monthly payment to the debt management company, which subsequently distributes the payment among your creditors. This will help you alleviate your debt burden and will also save some money on interest.          

It is also recommended that you develop a sensible budget in order to ensure that you can continue to save money and pay off your balances due.

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I did not realise this was possible, though I’m sure there are much too many hoops to jump through to discourage people from doing it. Besides, I doubt I would advise unless you’re in a very very severe financial state. It should be looked into more to be honest.