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Whole Life Insurance Policy Loans

Whole life or universal life policy loans allow you to borrow against the cash value accumulated within a whole life or universal life policy, with any outstanding loans and interest subtracted from either its death benefit or cash surrender value (in case you surrender).

Before taking out a policy loan, it is wise to discuss all of your options with a life insurance agent or financial planner. They can assist in helping determine whether it fits within your long-term financial plans.

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Policy loans offer a great way to access cash without draining savings or retirement accounts, but before taking one out it’s essential that you understand its terms and conditions. Insurance companies will typically charge interest on any amount loaned out – this may take form of either direct or non-direct recognition and its exact method may differ between life insurance providers.

Contrary to other types of loans, life insurance policy loans do not require employment verification or credit checks, and can often be approved within several days. Furthermore, their interest rates tend to be significantly lower than those charged on personal or home equity loans.

However, loaning against your life insurance can have serious repercussions for your death benefit. If the outstanding loan balance exceeds its value and causes the policy to lapse altogether – leaving your beneficiaries without their inheritance as promised.

If you decide to take out a loan, make sure you repay the principal and interest as quickly as possible or else your estate may incur tax liabilities; any loans and interest owed will be deducted from any death benefits payable upon settlement of the estate.

Whole Life Insurance Versus Term Life Insurance Information & FAQs

No credit check

Your life insurance policy allows you to access loans without needing a credit check if it has enough cash value, but beware that the outstanding loan balance will accrue interest and may reduce the death benefit your beneficiaries receive upon your death. Also, failure to repay in time could result in its cancellation and your policy becoming null and void.

To avoid this situation, it is a smart move to devise a repayment plan and monitor any outstanding loans, to make sure they do not exceed the cash value of your life insurance policy. Finally, speak with a financial professional to see if borrowing against it might be suitable.

Borrowing from life insurance is typically quick and easy. The amount you can borrow typically ranges between 90-100% of the cash value of your policy, making this an appealing option for people with poor credit who do not wish to undergo an extensive loan application process. Plus, life insurance policy loans have lower interest rates than bank loans!

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Whole life insurance offers permanent coverage and a guaranteed death benefit, while also building tax-preferred cash values that you can access throughout your lifetime. As an investment-grade asset, whole life policies can help fund children’s education costs, purchase property for retirement income purposes or meet other goals – it is recommended to discuss their benefits with financial and tax professionals prior to making a decision about this type of policy.

If you borrow against the cash value of your life insurance policy, any excess amount over its cost basis is taxed as a taxable gain and reported on Form 1099-R. However, loan payments typically go directly to the insurance company rather than your policy’s cash account.

Tax-free loans may offer attractive potential tax savings. But borrowing against your whole life policy also has drawbacks. Not paying back your loan in full could result in losing its death benefit and will reduce its cash value over time.

If you borrow too much against your life insurance policy, it could “cannibalize” itself and lapse – this is known as a “tax bomb,” and can be quite costly. There are ways around it such as adding riders.


Life insurance policy loans offer an easy and hassle-free way to gain access to funds without going through the application process for bank loans. Life insurance companies usually allow you to borrow up to 90% of the cash value in your policy at low interest rates without needing a credit check; furthermore, their low rates don’t require income tax on amounts borrowed plus interest subtracted from death benefits that will eventually go back out as income tax liability. It should also be noted that borrowing amounts plus any related income taxes may affect beneficiary inheritance benefits upon death.

Failing to repay a life insurance loan on time can cause it to lapse and make any outstanding balance subject to taxes when you die, not earning dividends and leaving beneficiaries without their promised death benefit.

Pay back policy loans as quickly as possible, ideally within one year, as insurance companies charge daily interest that can quickly accumulate into a considerable sum over time. Thankfully, most insurers work with their clients even when loan balance exceeds death benefit as they understand that life benefits of their clients come before profits from loans.