If you have a whole life policy and have taken out a loan, you might be wondering – what makes the most sense? Do I pay off the loan first, pay my premium or pay the interest? It is very important to understand the proper sequence and why.
Let’s review:
- First and most important – pay the base premium of your whole life insurance policy. You want your policy to remain in place for all the smart reasons that you purchased it. The banking function, death benefit, guaranteed growth, etc.
- The second step is to pay the loan interest. You do not want the loan interest to compound and end up paying interest on interest!
- Next – you want to put as much into your paid-up additions as possible. The more that you grow your PUAs, the more you have to bank with!
- Last, pay your loan back! Life happens, and sometimes we don’t get to pay things back when planned. But it is important to be disciplined and start paying back even a small regular monthly payment. This is the beauty of having an Infinite Banking Plan – you get to determine the terms of your loan. Unlike a bank, no one is dictating to you how much or when you pay your loan. It’s on your schedule, not someone else’s!
Remember, it’s OK to have a loan on your policy if that money is doing something good for you, such as allowing you to purchase a cash-flowing property or if you want to pay off high-interest debt.
If you have a whole life policy that you have been using to fortify your financial strength – congratulations! If you do not have a whole life policy and you are asking yourself – “why not?!”
