Because of the economic downturn triggered by the COVID-19 crisis, many people have found themselves in need of cash to pay unexpected medical bills, mortgage payments and other expenses. One option is to borrow against the cash value of a permanent life insurance policy, but such loans aren’t risk-free.

There’s a common misconception that, when you borrow against a life insurance policy, you’re “borrowing from yourself.” In other words, when you pay interest on the loan, you’re essentially paying yourself.

This may be true when you borrow money from a retirement plan, but it’s not accurate when it comes to life insurance policy loans. In fact, you’re borrowing from your insurer, pledging the cash value of your policy as collateral and paying interest to the company. Policy loans may be cheaper than traditional loans, but they’re not free.

Before you borrow against a life insurance policy, consider risks such as:

If you die before repaying the loan or choose not to repay it, the loan balance plus any accrued interest will reduce the benefits payable to your heirs. This can be a hardship for family members if they’re counting on the insurance proceeds to replace your income or to pay estate taxes or other expenses.

Depending on your repayment schedule, there’s a risk that the loan balance plus accrued interest will grow beyond your policy’s cash value. This may cause your policy to lapse, which can trigger unfavorable tax consequences and deprive your family of the policy’s death benefit.

You can borrow against a life insurance policy only if you’ve built up enough cash value. This can take many years, so don’t count on a relatively new policy as a funding source.

There can be advantages to borrowing from a life insurance policy over a traditional loan. These include:

Interest rates are usually lower than those available from banks and credit card companies, and there are little or no fees or closing costs. In addition, though you’re not paying the interest to yourself, your interest payments may benefit you indirectly if your insurer distributes a portion of its profits to policyholders as dividends.

So long as your insurer offers loans, there’s no approval process, lengthy application, credit check or income verification. Generally, you can obtain the funds within five to 10 business days.

Most insurers don’t impose restrictions on use of the funds. And you have the flexibility to design your own repayment schedule. You can even choose not to repay the loan, though that has negative tax consequences.

Funds acquired by borrowing from a policy aren’t considered income, so they’re typically not reported to the IRS. This differs significantly from surrendering a policy in exchange for its cash value, which triggers taxable gains to the extent the cash value exceeds your investment in the policy (generally, premiums paid less any dividends or withdrawals). Note that interest paid on the loan typically isn’t deductible.

Be sure you really need to borrow from a life insurance policy before doing so. Consider alternatives, such as selling an asset or reducing expenses. We can help you make the right choice.

The stock market’s roller coaster ride this year, spurred largely by the COVID-19 crisis, has many people craving stability. If volatility makes you nervous, it’s important to maintain a diversified portfolio that won’t plummet in value every time the Dow drops. One way to diversify your portfolio is with real estate.

This doesn’t mean you need to go out and buy several apartment buildings or commercial properties and become a landlord. There’s an easier, possibly less risky way, to gain real estate exposure—through a real estate investment trust (REIT).

Although their name might imply it, REITs don’t provide a direct investment in real estate. Instead, a REIT is a special kind of corporation that buys, sells and rents real estate on behalf of its investors. To qualify as a REIT, at least 75 percent of the company’s income must come from real estate. Unlike normal corporations, REITs aren’t required to pay taxes at the corporate level. In exchange for this benefit, they must distribute 90 percent or more of their rental income to shareholders in the form of dividends.

These property companies can be either private or publicly traded. Public REITs are like other public equities in that they trade on stock exchanges.

Investors traditionally have turned to REITs to diversify their portfolios because they tend to perform differently from bonds and somewhat differently from the broad equity market, while generating long-term returns comparable to those of the latter. That said, the correlation between REITs and U.S. stocks has increased in recent years, which means that REITs may no longer provide quite the same diversification opportunities as in the past.

Many investors favor REITs for the securities’ relatively large income stream. Individuals approaching retirement may look to REITs’ dividends as a source of regular income. (But bear in mind that there’s no guarantee that a REIT will distribute a dividend.) Liquidity is another important benefit, as REIT shares can be bought and sold on public markets. What’s more, REITs give you flexibility to achieve your target real estate exposure because you can own the exact amount that fits your investment strategy.

There are drawbacks. For example, REIT dividends are taxed as ordinary income, which is subject to a higher rate than qualified stock dividends. But this could be mitigated somewhat because 20 percent of qualified REIT dividends may be available for the Section 199A qualified business income deduction. One way to limit REITs’ tax impact is to hold them in an IRA, 401(k) plan or other tax-advantaged investment account.

There’s no guarantee that REITs will appreciate or pay dividends. It’s possible to lose money in such investments. Talk to a qualified investment advisor about whether a REIT might benefit your portfolio given your personal circumstances, long-term goals and risk tolerance. We can help you assess the tax impact.