Borrowing against the cash value of your permanent life insurance policy is rather simple, and unlike other loans, there are no qualifications needed aside from the potential amount of cash that is available. Life insurance policies can be used for really any purpose and can be paid back at any moment that you decide to do so.

Life insurance loans can also be relatively low in terms of interest rates, which is a large perk in terms of utilizing this option. While this option is among the most positive and beneficial for borrowing, if you somehow become unable to pay the loan’s interest rate and the policy lapses, then your life insurance coverage may be terminated and you can be at risk of having a substantial tax payment.

Borrowing Against a Life Insurance Policy – Is it Possible?

Yes, it is possible to borrow against your life insurance policy. As you pay premiums for your cash value life insurance policy (this would be a whole or universal life insurance policy), a portion of your premium is also going to go toward the cash value. As you continue to pay your premiums over time, then the cash value grows over time through the interest rate that is established within the policy terms.

This will ultimately become equivalent to the amount of money that would be received if you surrendered the policy to the insurer. If you have a permanent life insurance policy that is accumulating a cash value through premiums, then you can borrow the money eventually. This is only after your cash value has reached a particular size, usually after a few years of paying premiums.

Term life insurance policies are considered much cheaper than any permanent policies because they do not tend to have a cash value component, which does not allow you to borrow against them and will not give you any money in return.

How Much Can I Borrow From My Life Insurance Policy?

The answer to this question varies from each insurance provider, but the maximum policy loan can be at least around 90% of the overall cash value. Usually, there is not a set minimum that you are allowed to borrow.

It is commonly confused that when you take out a policy loan that you are removing money from the cash value. What you are actually doing is taking a loan from your insurance provider and then the cash is there as collateral, just in case you are unable to pay it back. This is extremely beneficial because the cash value utilized as collateral stays inside your life insurance policy and will then continue to accumulate interest, even if it is at a different rate.

In addition to the cash value staying inside your life insurance policy, you will not need to pay the loan back within a set period of time, as this is usually required by other loan forms. While this is beneficial, if you do not pay the annual fixed or variable interest rate, then your interest payment will be then added to the value of your outstanding loan, which will be harmful to you after compounding interest if the policy loan lasts multiple years. If the outstanding loan ends up reaching the size of your policy’s cash value, then your policy will then lapse. When your policy lapses, you will not only lose your coverage, but you will also pay income tax on the outstanding loan that becomes greater than the overall amount you have paid in premiums over the years. Therefore, try to make sure that this never happens to you and that you are capable of paying the annual interest rate!

Taking out a Life Insurance Policy Loan – How to Do It

Taking out a life insurance policy loan is much more simple than taking out your other standard forms of loans. All you will have to do is fill out a form the insurer and then you will then get the money deposited into your account within only a few days.

When filling out the form, you will need to confirm your identity, sign a confirmation document, or provide a notarized confirmation before receiving your loan. You will only have to do this if you have provided new account information to your insurance provider in the last month, your policy has changed ownership within the last few months, or your loan exceeds a certain size.

Paying Back a Life Insurance Policy Loan

After borrowing your life insurance policy, you will not have to pay back the loan or pay the annual interest as long as your total outstanding loan does not exceed the policy’s cash value. If your loan is not above your policy’s cash value or you can afford the annual interest payments, then borrowing from a life insurance provider is a great and beneficial option if you are unsure as to how long you will need to loan.

Having said that, it is beneficial to pay back your loan in a timely manner to ensure that your interest does not compound heavily and your outstanding loan gets too large, ultimately making it impossible to pay. It is also important to pay back the loan in a timely manner because the total outstanding balance would be deducted from any death benefits your beneficiaries will receive if you were to pass away. Overall, borrowing from your life insurance provider is a rather positive experience and is extremely beneficial.


  1. Can you borrow more than the cash value on a life insurance policy

  2. So because the loan is outside the policy, while interest on the loan accumulates over time, the cash value of the policy can also separately accumulate over time?

    1. Hi Fred, this is true but the loan can affect dividend payouts. You should ask for an illustration, which shows the projection given a loan. Your company or agent can provide this for your specific policy.

  3. Are there any workarounds on these situation – loan used to make policy payments. Policy taken out when I was young and totally did not udnerstand how whole life policies work. Made payments for a couple of years, started moving around the country a lot with work…lost track of polcies ad now owe a good amount of money (Policy is small tho at $12K). I’m at 80% of cash value so have to do something quickly before policy lapses.

    Thank you

    1. You can direct the dividend to pay the loan, which may help. Keep in mind that your payout is reduced by the outstanding amount of the loans. If you only have 20% of twelve thousand dollars left, you only have $2,400 of coverage. It may not be worth keeping the policy.

  4. Ntokozo Mhlanga

    In additional benefits in retirement can you claim that amount if it’s paid up

  5. Ntokozo Mhlanga

    When retiring at 60 can you claim the amount on additional benefits

  6. Rosevelt O Smith

    My mother passed in September she had a policy I am the insurer. The policy has lapsed and if I cancel I get 600 some dollars my question to you if I pay the hundred $18 what is overdue will I be able to borrow against it

    1. I’m not sure if I understand the question. If the policy is in the grace period, you can still pay the overdue amount. You can call the life insurance company, and see if you can reinstate the policy if you are out of grace period. If the policy is active and there is a cash value, you can borrow against the cash value of the policy.

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