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Can You Borrow Against a Whole Life Insurance Policy?

Whole life insurance offers both lifetime coverage and tax-deferred savings in one package – called cash value – which grows tax-deferred over time. Once accrued, this money may be borrowed against or withdrawn upon during your lifetime without incurring loan interest or decreasing its death benefit.

Before borrowing against your life insurance policy, be certain to fully comprehend how it operates.


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Policy Loans

Policy loans are useful tools in emergency situations because they provide quick access to cash. But it is important to remember that borrowing against your death benefit reduces how much will pass to your beneficiaries upon your death, and that if your loan balance and accrued interest aren’t repaid on time, your insurance provider could cancel it altogether and cancel all future life policies with them.

Good news: unlike personal loans, policy loans won’t appear on your credit report or require you to submit to a credit check. Furthermore, they don’t require proof of income; but you should ask your insurer for confirmation and request an in-force illustration that displays both policy values with and without loans in force.

If you decide to take out a policy loan, it’s essential that you keep track of both the outstanding balance and annual interest owed; even with low-interest rates, outstanding balances can quickly build. Should the total value of your death benefit reach that amount borrowed, your policy may lapse and taxes may become due on what was borrowed. Thankfully, many life insurance companies provide opportunities for keeping loan balances to a minimum by making regular interest payments as part of premium payment plan.

Whole Life Insurance Versus Term Life Insurance Information & FAQs

Interest Rates

Life insurance loan interest rates often offer lower rates than conventional bank loans, and loans secured by your cash value typically require no lengthy approval process or credit check. It is important to remember that loan balance plus interest could exceed your cash value and cause it to lapse or surrender, in which case it would become taxable income to both yourself and beneficiaries.

Whenever borrowing against life insurance policies, make sure that interest payments are on time. Otherwise, the loan balance and interest could exceed your cash value and cause it to lapse or surrender the policy; either way, the IRS could consider your loan balance taxable income for both yourself and any beneficiaries that could inherit the policy.

Discuss policy loans with your agent and estate planning attorney regarding how they work for your particular insurer, as well as any possible tax ramifications of taking out such a loan. Thrivent can assist in finding you a professional who understands your unique goals and can tailor strategies towards them.

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Commercial Umbrella Insurance


Policy loans are a type of collateral loan in which your life insurance policy serves as collateral, eliminating the traditional approval process associated with credit cards or personal loans, while not appearing on your credit report – making this an attractive solution if you need quick access to cash without going through lengthy loan applications.

However, borrowing from your life insurance policy comes with tax implications and may reduce your death benefit as a result of not repaying what has been borrowed in full plus interest due before your death. Therefore it is highly advised to consult an independent financial expert prior to making this decision.


If your credit is too poor for you to qualify for an unsecured loan, life insurance may provide an attractive solution. By designating the lender as collateral assignment beneficiary on your whole life policy, this gives them priority access to your death benefit when the time comes.

This type of lending offers greater flexibility than pledging assets as collateral, as it lets you avoid the adverse repercussions associated with defaulting on an unsecured loan. But this approach may come with its own unique set of disadvantages.

Unsecured loans tend to cost more in interest rates due to their cash value’s return on investment, typically within a range of your loan’s interest rate.

If you decide to use life insurance as collateral for a loan, consult with a financial professional first so you can understand its terms and conditions and decide if this arrangement is the best choice for your circumstances. Your advisor can work with you to secure financing that supports your goals and objectives as well as find products to fulfill them. When ready, reach out to Lions Financial today for a complimentary consultation session!