Description: Get to understand how you can utilize your life insurance policy to manage your debts.

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 in your path towards debt independence. This is the time when you need debt management tips or the assistance of a financial advisor to get out of debt. You would 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 would help you understand.

How life insurance policies help you manage your debts?

There are some life insurance policies that can help you in 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) Life insurance settlement

Life insurance settlement is essentially an expression that refers to the selling of a life insurance policy in return of a one time cash payment. Because of financial crunches, the policyholder might opt to sell his life policy to a third party. In this way, the ownership rights are transferred to the buyer. The buyer gives him a lump sum payment against getting the ownership rights.

3) Tapping life insurance

Obtaining a cash surrender loan is a good option if you have a whole life policy with adequate cash value. It is basically a dollar amount that the policyholder receives when the policy is terminated.

Now, how these above mentioned techniques help you in a debt management plan? These techniques can help you fund your debt management plan (DMP) where you need to send a monthly payment to the debt management company. The company subsequently distributes the payment among your creditors. This would help you alleviate your debt burden and also save some money on interest.         

It is also recommended that you know money management skills and design a sensible budget in order to ensure that you can save from your income and use it to pay off your balances due.