How to borrow against life insurance

Life policyholders should all know how to borrow against their life insurance.

One of the goals of life insurance coverage is to have your back and your beneficiaries too.

Although this life insurance coverage comes in different styles. Your preferred type of coverage determines what benefits you get out of your package.

So, before you purchase a policy package, be sure it has all the right benefits you wish for.

Hence, knowing how to borrow against your life insurance savings is for those with the right insurance policy.

Which life insurance policy can you borrow against?

There are life insurance policies that help you to save even while you pay your premium.

You see, the thought of saving while looking out for your family members comes with pure peace of mind.

Meanwhile, the type of life insurance policy you can borrow against has the cash value feature.

You can find this feature in a permanent life insurance policy which is regarded as traditional life insurance or whole life insurance. 

The cash value is a savings account that allows you to save money while also, paying your premiums.

In contrast, term life insurance packages do not come with this privilege. Yes, it has what makes it admirable in its way, but it lacks in savings. With term life insurance, you enjoy low or cheap premiums while the coverage lasts between 10 to 30 years and expires.

Though the savings in permanent life insurance takes time to build up. And building it might take up to five years or more. 

READ Also:  Return of premium life insurance

Still, your patience will pay off after your cash value has matured and is ready to serve its purpose. These savings grow with interests and they are always tax-deferred. 

Furthermore, when your cash value matures, you can borrow against it if you have some need for an emergency fund.

Again, you can withdraw from your cash value but after all these, you must pay back what you borrowed or withdrew.

Additionally, your cash value can pay your premiums but first, you must let it accumulate enough money in the savings.

Peradventure, you could not pay back the loan before you pass away, the insurance company will take away a chunk of your beneficiary benefits.

How do you successfully borrow against your life insurance?

Borrowing against your cash value is pretty much hitch-free. You only need to sign a few documents for your insurance provider which will depend on the agreement you had when you bought your coverage.

After you’ve signed the necessary documents, you will receive your loan in your account within five working days.

However, if you want your loan in a separate account, aside from your regular account. Then, you need to inform your insurance provider ahead of your loan.

More so, if you plan to withdraw a loan higher than $50,000, you need to go for more documentation and provide a notarized document.

Who is qualified to borrow against life insurance?

There are no qualification measures for you to borrow against your policy. Except your cash value has not matured, this is the only limiting thing.

READ Also:  Mutual funds

All you need to do is to wait for a few years so that the beneficiary benefits attached to the policy can grow enough to their maximum. 

Then, the extras begin to build up your savings which you are entitled to borrow against at any time.

The loan will not appear on your credit report, so your financial track remains as it were. 

Also, no need to answer questions about why you need to borrow from your savings. It is because originally, you’ve earned the right to account as the owner.

Your loan can serve you any purpose; from college payments to medical expenses or whatever you need the funds for. 

It’s up to you to decide because you are the one in need of funds.

However, when you borrow or withdraw through this means, you have to pay back the loan with interest on it.

Why do I have to pay back my policy loan?

Except you do not plan on leaving enough beneficiary benefits behind for your loved ones.

You see, the interest that accompanies your policy loan is never as high as the interest with the regular loans you borrow with your credit card.

Though the rates for your policy loans may differ according to the insurance provider and the policy. Still, it would not be higher than at least 8%. You could have your interest at a minimum of 1.5% or 2%.

Most insurance providers have the interest rates of the policy loan fixed while others may have it in variables. So, you need to plan your payback for your interest and loan not to accumulate overly.

READ Also:  Hybrid Long-term Care Insurance

Be as it may, you do not have to pay back your loan. No one holds you deeply accountable for payment.

However, it is for you and your beneficiaries’ interest if you pay back. Your policy provider makes sure they replace your loan with the accumulated beneficiary benefits. 

This will greatly reduce the expected beneficiary payout or worst case scenario, gulp up the entire beneficiary payout. 

How much is the highest you can borrow?

Your insurance provider will have all this information ready for you before you purchase your policy. But generally, you can not borrow more than 90% of your cash value.

It will help you to stay within your limit and comfortably pay off your loan.

Again, not letting your loan sit idly for a long time is the way forward. Letting your loan sit without payback poses a risk to your entire policy and hard work. In extreme conditions, it may result in losing your policy as a whole.


Buying life insurance policy is a great move you need to make if you’ve not done so. How nice and comforting it is to have a system that helps you save, and pay out for your family members, should you pass away. Not only that, you have a backup plan in case you suddenly need money urgently with low interest.

Leave a Reply