In this post I am going to talk to you about how interest is charged by the insurance company.
Insurance companies work on an annual basis. illustrations are calculated annually, dividends are paid annually and loans are calculated on an annual basis.
When you take a loan, you prepay interest for the remainder of the policy year in advance. If your policy anniversary is January 15th and you take a loan in September, you will prepay interest from September to January 14th.
Charging interest up front prevents over borrowing from the policy and of course, ensures that the insurance company get’s paid interest owed.
You may be wondering if this means you will pay more interest than if you paid it at the end of the year and the answer is no.
As you repay your loan, you will be credited back the prepaid interest. So, for example, if you took a $10,000 loan on Tuesday and paid it back on Friday almost every penny of interest you prepaid would be returned to you.