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Borrowing Against Life Insurance

There are some unique instances where you may be able to borrow against the value of your life insurance policy, although it is not always possible. This can be particularly helpful if you need to send a child to college or pay a mortgage. In these instances, having a substantial monetary value to borrow against can be a helpful tool.

Can I borrow against my life insurance policy?

Simply put, yes—you can borrow against your life insurance if the plan you choose has cash value. Cash value is a portion of your life insurance payment put into a savings-like account that grows tax-free over time.1 Cash value is typically found in whole life insurance plans and isn’t an option in term life insurance policies.2

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How does a life insurance loan work?

In a nutshell, you can take out life insurance loans against the value of the death benefit within a life insurance plan.3 The death benefit is the portion of money paid to the beneficiary when the life insurance policy owner passes.4 The value of the life insurance policy itself is used to help guarantee the loan will be paid back.5

These life insurance loans are taken out with the life insurance company rather than a bank or credit card company. These often come with a simpler approval process, since you technically own your life insurance plan's death benefit and cash value.6 Life insurance companies will charge interest on the loan monthly, and you can either pay it as it comes in or let it accrue and pay it all later.7

Pros and cons of borrowing against life insurance

There are a few specific instances when taking out a loan against your life insurance can be more beneficial than going the traditional route with a bank. Let’s explore these pros and cons of borrowing against life insurance more in-depth.

Pros of borrowing against life insurance

  • Most of the time, life insurance loans are not recognized by the IRS as income, so you won’t have to pay taxes on them.8 This depends on the plan's details, so we recommend discussing this with a financial advisor.
  • There is no formal approval process for a life insurance loan, since the value of the plan is technically yours.9
  • Life insurance loans will not affect your credit.10

Cons of borrowing against life insurance

  • If you are unable to make monthly payments in a timely fashion, you may lose your life insurance plan.11
  • If the loan is not paid back before the policy owner passes, the beneficiary will only receive a portion of the death benefit.12
  • If the life insurance plan lapses, you may have to pay taxes on it since the tax structure will change.13

Aflac offers whole life insurance

Aflac offers whole life insurance with cash value that you can borrow against in the form of a loan. These life insurance loans can help pay for medical expenses, a mortgage, or any other bills you may have. Our life insurance plans are affordable, flexible and you may be able to skip the medical questions. Chat with an agent today to see how our life insurance plans fit your goals.

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Explore your life insurance options.

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