Borrowing against a life insurance policy has grown very popular over the last decade but while there are a number of benefits to this strategy, there are also quite a few consequences as well.  Permanent or universal life insurance policies are made of two components, the death benefit or face value of the policy and the cash value or investment component.

The cash value component is considered an asset so you’re able to use it as collateral for a loan.  Insurance companies will usually let you borrow up to 90% of the cash value of your policy.  A bank can also be used for this as well if they are placed as the beneficiary for the loan amount.

The benefit of borrowing from your own policy is that there is no set repayment schedule so it can offer a lot more flexibility than a regular private loan.  The interest rate will also tend to be lower since there is practically no chance of default.

Theoretically it is possible to not have to pay the loan back until death but that is not recommended.  The loan amount will grow over time as interest is compounded and this is where the danger comes in.

In a bearish market like we currently have, it is quite possible for the loan amount to grow at a faster rate than the cash value component.  If the loan amount ever goes over the cash value amount, one of two things will happen.  Either the borrower pays the difference to the lender to keep the loan amount below the cash value component or the policy lapses.

If a policy is allowed to lapses, what happens is a cash surrender where the cash value amount is paid out, which can have significant tax implications.  Also the death benefit component will now be forfeit which is the main reason you buy insurance in the first place.

Let’s say that you have $100,000 in your cash value account and borrow $75,000 of it from your insurance company.  This doesn’t reduce the cash value component of the policy to $25,000 as the loan is not considered a withdrawal, it’s still at $100,000 and will continue to grow at a tax deferred rate..

Then let’s say you chose not to repay the loan and that eventually over time, both the loan amount and cash value have grown to $300,000 when the policy finally lapses.  The cash surrender value then becomes fully taxable as income by the IRS at whatever tax bracket you are in.

It is quite possible, if you are in a high enough tax bracket and if the loan was for a long enough duration, that the taxes owed may be more than the original amount borrowed.  So even though you only borrowed $75,000 initially, you will be responsible for paying taxes on the full $300,000 amount of the cash value component.

It is very important to talk to a credible financial planner and make an informed decision before entering into this type of loan agreement.

While most Americans would like to believe that we have the best healthcare system in the world, that couldn’t be further from the truth.  What we really have is one of the most expensive healthcare systems in the world.

Of the world’s industrialized nations, we rank fairly low in a number of health statistics.  Granted we do have some of the best doctors in the world, but large segments of the population are unable to afford their services.

It is estimated that the number of Americans without healthcare insurance is at a staggering 60 million.  With the economy taking a turn for the worse you can expect that number to rise over the next year.

The state of Massachusetts has taken the bold step of instituting universal healthcare for it’s residents and California has been contemplating a similar program in it’s state as  well.  It will be interesting to see if they are successful in their attempts and whether it may be a role model for a future nationwide program.

The other industrialized nations have proven that a universal healthcare system can work and at a cheaper cost.  It is estimated that the U.S. spends on average 40% more per capita on healthcare than countries that have a universal healthcare system in place.

With healthcare costs are spiraling out of control and inflation heating up in general, a number of Americans will have to make the difficult choice of abandoning health insurance all together and pray that they don’t get sick.

The facts are that flood damage can happen no matter what state you live in.  Even in the highest risk areas, only a small percentage of homeowners purchase flood coverage.  Many Americans have left themselves wide open to heavy losses with little to no recourse.

It’s estimated that about 30% of Americans still mistakenly believe that flooding is covered under their regular homeowner’s policy.  Heavy rains in the Midwest have brought flood insurance back into the spotlight.

Since insurance companies don’t typically offer this kind of coverage the government has had to step in and become the “insurer of last resort”.  In 1968, Congress established the National Flood Insurance Program(NFIP) which is under the direction of the Federal Emergency Management Agency(FEMA).

The program offers flood coverage to residents in communities that follow FEMA guidelines for floodplain management and damage mitigation.  Annual premiums are normally in the $400-$500 range for a median priced home.  While regular insurance carriers don’t offer the coverage itself many of them have entered into agreements with the program to accept payments for the flood coverage and maybe able to offer you some advice.

The program is often criticized because it encourages people to build and reside in flood prone areas.  Nonetheless if you live in these areas currently, you should take advantage of it.

Since it’s a federal run program, premiums are artificially low.  If private companies were to offer flood insurance, rates would be much higher.