An annuity is an investment that you can buy from a life insurance company that is designed to provide you with an income for the rest of your life. Depending on the type of annuity you buy, it can stop making payments when you die, or it can pay your beneficiary up to a certain point. If you need money, you may be able to get your money out of the annuity as a single lump sum payment. You may also be able to borrow from your annuity.
1. Review the documents you received when you purchased your annuity. These should clearly state whether you are allowed to borrow from your annuity. If you aren’t sure, contact the company that holds the annuity to find out. If borrowing from the annuity is forbidden, they will not make an exception for you. Many times, however, it is permitted. Check the terms to see what you will be able to borrow, and what the repayment terms will be. Such loans can be fairly costly depending on the company that holds the annuity, so make sure it is worth it before proceeding.
2. Request the appropriate loan forms from the annuity administrator. Fill these out and return them to the administrator. Borrowing from an annuity is typically a simple matter, since the money in the annuity fund secures the loan you get. Usually you cannot borrow more than half the value of the annuity, but this is determined by the holder of your annuity, and should be covered in the policy documents.
3. Keep all loan documents in a safe place. Depending on your situation, you may have to report your loan as income for the year. If so, you should receive a form 1099-R that indicates the funds are taxable. Whether or not the loan itself is taxable, you usually can’t deduct the loan fees or any penalties you were required to pay. If you are taxed on the loan, the interest is sometimes tax-deductible depending on what the money was used for. Check with a tax professional for specific details as they relate to your situation.
- If you can’t borrow directly from your insurance company annuity, you may still be able to use it as security for a bank loan.
- Pay back your annuity on time. Late payments can trigger significant financial penalties. If you have already begun receiving payments on your annuity, you will not normally be able to borrow from it.
Items you will need
- Annuity documents
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