How to Use a Life Insurance Cash Balance to Pay Off a Mortgage

Paying off the mortgage feels good, but doesn't always make financial sense.
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If you're ever trapped in a room full of insurance agents, ask them innocently whether you should buy term or permanent insurance. You can make a clean getaway while they're arguing. They'll have strong opinions on the subject, because the two are very different. Term insurance is dirt cheap because it just gives you a death benefit. Permanent insurance has an investment component, which builds slowly for up to 20 years but then increases more rapidly. Over time, this builds up equity in the form of a cash balance. You can redeem or borrow against those funds to pay off your mortgage.

Step 1

Read the most recent statement from your insurance carrier, looking for a figure described as the "net cash surrender value." This is the amount of equity built up in the policy.

Step 2

Decide whether to withdraw the funds or borrow against them. Most carriers will allow you to borrow funds from the policy at a modest rate of interest -- and pay back the loan as, and when, you choose.

Step 3

Request the funds from your insurance company. They'll usually send you a form to fill out and return. Some companies might send a representative to assist you, as well as explain any potential repercussions for your policy.

Step 4

Deposit the funds and write your mortgage lender a check to pay off the balance of your mortgage.

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