How to Borrow Against Your Life Insurance Policy

Only permanent life insurance policies with accumulated cash value allow policy loans. Whole life, universal life, and variable universal life policies build cash value over time as you pay premiums; a portion of each payment goes toward the cash account, which grows tax-deferred.

The maximum loan amount equals a percentage of your policy's cash surrender value, not the face amount or death benefit. Most insurers cap policy loans at 90 percent of the cash value; some set the limit at 95 percent.

1. 1Verify cash value and loan availability. Review your latest policy statement or log in to your insurer's online portal. Look for "cash surrender value" and "available loan value."
2. 2Contact your insurance company. Call the policyholder services number on your statement or submit a request through the online account dashboard.
3. 3Complete the loan request form. The insurer will ask for the policy number, the loan amount, and your preferred disbursement method (check, ACH transfer, wire).
4. 4Review loan terms. The insurer will disclose the current interest rate, compounding frequency (usually annual), and repayment options. Policy loan rates typically range from 5 to 8 percent, depending on the policy type and when it was issued.
5. 5Receive funds. Once the insurer processes your request—often within five to ten business days—the money arrives in your bank account or by mail.
6. 6Track the outstanding balance. Interest accrues on the loan and compounds annually. You are not required to make payments, but unpaid interest is added to the loan principal and will reduce your death benefit if the loan remains outstanding.

Policy loan interest rates are set by the insurer and vary by product and issue date. Whole life policies issued before 2000 often carry fixed rates between 5 and 6 percent; newer policies may use a variable rate tied to an index such as Moody's Corporate Bond Yield Average, typically resulting in rates between 5 and 8 percent.

Repayment is optional during your lifetime. You can repay the loan in full, make partial payments, pay only the accrued interest, or make no payments at all.

Any outstanding loan and unpaid interest reduce the death benefit dollar-for-dollar. If you borrowed $30,000 and have accrued $2,000 in interest when you die, the insurer subtracts $32,000 from the face amount before paying your beneficiaries.

Surrendering a life insurance policy means canceling the contract and receiving the cash surrender value, minus any surrender charges the insurer imposes during the early years. Surrender ends your coverage permanently, and you owe income tax on any gain—the amount by which the cash value exceeds the total premiums you paid.

Can you borrow against a term life insurance policy?

How long does it take to borrow against your life insurance?

Most insurers process policy loan requests within five to ten business days. You complete a short form online or by phone, the insurer verifies the available cash value, and funds are sent by check, ACH, or wire.

Is interest on a life insurance policy loan tax-deductible?

Generally no. The IRS does not allow a deduction for interest on loans used for personal purposes.

What happens if you never repay a life insurance policy loan?

Can you borrow against your life insurance policy more than once?

Yes. As long as your cash value supports additional borrowing and you remain below the insurer's loan-to-value cap (usually 90–95 percent), you can take out multiple loans over time.

How do policy loan interest rates compare to personal loans or credit cards?

Policy loan rates typically range from 5 to 8 percent and do not require a credit check or monthly payments. Personal loans from banks often charge 6 to 15 percent depending on your credit score, and credit cards commonly carry rates above 18 percent.