Borrowing Against Your Life Insurance Policy

A permanent life insurance policy, either universal or whole life, usually has a cash value that accumulates interest over time. You can borrow against your permanent life insurance policy based on its cash value. The policy will then become collateral for the loan.

If you have a term life policy, on the other hand, you cannot borrow from it. It has no cash value outside the death benefit and expires at the end of the stated term.

Is It A Good Idea To Borrow From Your Life Insurance Policy?

Although a life policy should provide money for your loved ones when you die, you can borrow against its cash value while you are still alive. When you borrow from your life insurance, you are essentially borrowing from your own money.

Borrowing is entirely different from when you sell your life insurance policy. Selling gives your beneficiaries no future rights or benefits. But borrowing still leaves them with a policy.

Borrowing from your permanent life insurance may be an excellent option to consider:

• If you plan to pay back the interest and cash value within a reasonable amount of time

• If the amount you want is less than the cash value of the policy

• When you need a loan for a brief period at a low-interest rate

• During an extreme emergency

What Happens When You Borrow From Your Permanent Life Insurance?

Your borrowed loan remains tax-free since it is not an income. You will, however, pay back with interests. But this repayment schedule is easy and flexible.

If you do not pay back the loan when due and you die, the amount of the loan and the interest accrued will reduce the death benefit. If the outstanding amount reaches the size of your insurance cash value, the policy will lapse.

How Much Can You Borrow?

You can borrow as much as 90% of your total cash value. Borrowing against your insurance means you can only take out a partial amount of the cash value and keep your policy active.

This payout is unlike a life insurance buyout where you can cash-out on everything.

How Do You Borrow From Your Policy?

If you have an interest in cashing out a life insurance policy, you will first need to contact your insurance company. They will help you determine the right payout means and also monitor your balance to help you keep up with repayments.


Borrowing against your life insurance policy is only possible if you have been paying a premium for some time. If your insurance is new, it might take some time before you can borrow against it.

The cash out time will depend on the size of your policy, the amount of premium you pay, and your insurance company’s policies.

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