LIFE insurance is often seen as a payout to beneficiaries after death, but globally it also carries what are called “living benefits”. These include the ability to use a policy as collateral for loans such as mortgages, or even borrowing against it directly once it has built cash value.

“You can assign a policy to your mortgage as collateral. What the lending institution is looking for is that you can pay the full loan should you die, and the house is then passed on to beneficiaries without any mortgage,” Mark Lindsay, branch manager of Sagicor Life Jamaica’s Senators branch, explained to the Jamaica Observer.

Internationally, particularly in the United States, both term and permanent life insurance policies may be used as collateral. Term life insurance, which provides coverage for a set period but does not accumulate any savings or investment value, may be less attractive to lenders. In contrast, permanent life policies offer added security because they include a cash value component. In these cases, lenders can access this accumulated cash value if a borrower defaults. According to MarketWatch, interest rates on life insurance loans typically range between 5 and 8 per cent — well below the cost of personal loans or credit cards. But despite these advantages the practice is rare in Jamaica. Efforts to clarify why local banks do not accept life insurance as collateral at lower interest rates have been met with a standard response: “We just don’t do that.”

Lindsay added that beyond mortgages, policyholders can also assign life insurance as collateral for other loans, something Sagicor has done in practice.

“Having the insurance safeguards your family members because those loans will have to be cleared off,” Lindsay said as to why Sagicor accepts life insurance as collateral.

While insurance can be assigned as collateral in some instances, unlike in international markets it does not translate into lower borrowing costs. In fact, some commercial banks refuse to accept individual policies at all.

“In instances where they don’t, I don’t understand why they are not doing it because the client already has an insurance policy in place and it’s an advantage to use the plan they already have,” he said.

In the event that banks do not accept life insurance as collateral, Lindsay said it is still important to have as it safeguards families and prevents the burden of relatives having to repay loans left behind by a borrower. However, he pointed to other living benefits of insurance. These include critical illness coverage and terminal illness protection. In cases whereby a doctor certifies that a person has six months or less to live, most Sagicor Life policies will pay out at least 50 per cent of the sum insured, with the remaining balance paid to beneficiaries upon death.

LINDSAY…in instances where they don’t, I don’t understand why they are not doing it because the client already has an insurance policy in place and it’s an advantage to use the plan they already have.