Can You Borrow from Life Insurance?

Shawn Plummer

CEO, The Annuity Expert

Eligibility for Borrowing Against Life Insurance

Borrowing money from a life insurance policy is possible if it has a cash value component. This feature is present in permanent life insurance policies like whole life, universal life, or variable life insurance. However, term life insurance policies, which do not accumulate cash value, do not offer this borrowing feature.

Example: Owning a whole life insurance policy for several years could mean you have enough cash value to borrow against.

How Soon Can You Borrow Against Life Insurance?

The timeframe for when you can start borrowing against your life insurance policy depends on how much cash value the policy has built up. Typically, it takes a few years for a policy to accumulate a sufficient cash value, as initial premium payments primarily go towards insurance costs.

Example: If you have a whole life insurance policy for about 5 years, you may have built enough cash value to be eligible for a loan.

Life Insurance You Can Borrow From

Terms and Conditions of Borrowing

Interest Rates: Loans against life insurance policies come with interest rates, which are set by the policy terms and insurer.

Example: A loan of $5,000 from your policy might have an annual interest rate of around 6%.

Repayment Terms: There’s usually no fixed repayment schedule for policy loans, but failing to repay can lead to policy lapse if the loan and interest exceed the policy’s cash value.

Example: Non-repayment can cause the policy to lapse, jeopardizing the insurance cover.

Impact on Death Benefit

If the loan is not repaid, the outstanding loan amount plus interest is deducted from the death benefit. This reduction means less payout for your beneficiaries.

Example: An unpaid loan of $10,000 could reduce the death benefit by the loan amount plus accrued interest.

Borrow From Life Insurance

Life Insurance Loan Overview

EligibilityMust have cash valueWhole, Universal, or Variable Life Policy
Borrowing Time FrameAfter building enough cash valueOften a few years after starting the policy
Interest RatesVaries with policyApprox. 6% annually, varies by policy
Repayment FlexibilityFlexible, but impacts policyNo fixed schedule, risk of policy lapse
Effect on Death BenefitUnpaid loan reduces the benefit$10,000 loan reduces benefit by that amount plus interest


Borrowing from life insurance is an option with policies that have a cash value component, mainly found in permanent life insurance policies. The ability to borrow depends on the amount of cash value accumulated, typically taking a few years. While offering a flexible source of funds, it’s important to understand the impact on your policy and death benefit. Assessing these factors carefully is key before deciding to borrow against your life insurance.

Contact us today for a free quote.

Need Help Getting Life Insurance Coverage?

Contact us if you need help purchasing a life insurance policy. The service is free of charge.

Life Insurance Inquiry

Frequently Asked Questions

What kind of life insurance can you borrow from?

With a cash value component, you can only get loans on permanent life insurance policies, such as whole and universal life. The cash value of your policy increases over time. Once it reaches a certain amount (minimum varies by the insurer), you can use it as collateral to request a loan from your insurance provider.

Do you have to pay back life insurance loan?

It’s important to understand that taking out a loan from your life insurance policy is unlike a typical loan. You don’t have to repay the loan, but the insurance company will add interest to your borrowed amount. Essentially, you’re borrowing money from yourself.

What is a life policy loan?

An insurance company can provide a policy loan that uses the cash value of a life insurance policy as collateral. This type of loan, also known as a “life insurance loan,” typically has lower interest rates than a personal loan. You are free to use the money for any purpose and are not required to repay the loan before you pass away.

Can you immediately borrow against life insurance?

Is it possible to borrow against life insurance right away? You cannot borrow against life insurance until your policy’s cash value reaches a certain threshold. The policy’s cash value may take several years to reach this minimum amount, and the specific minimum required can vary between insurers.

Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

Scroll to Top