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How Can I Borrow Against My Life Insurance Policy?

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. Getting a policy loan 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. Let’s dive deeper into if you can borrow against life insurance and how a life insurance policy loan works.

Can I borrow against my life insurance policy?

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 The cash value component is typically found in whole life insurance plans and isn’t an option in term life insurance policies.1

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How can I borrow against life insurance?

You can take out life insurance loans against the value of the death benefit within a life insurance plan.1 The death benefit is the portion of money paid to the beneficiary when the life insurance policy owner passes.2 The value of the life insurance policy itself is used to help guarantee the loan will be paid back.1

When you borrow against life insurance, these loans are taken out with the life insurance company rather than a bank or credit card company. They often come with a simpler approval process, since you technically own your life insurance plan's death benefit and cash value.1 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.1

What life insurance policies can I borrow from?

You can borrow money against permanent life insurance policies that have cash value. Some types of permanent policies you can borrow from include whole life, universal life, and final expense insurance. Remember that term life insurance policies don’t come with a cash value component, so you can’t borrow against term life insurance.

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.1 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.1
  • Life insurance loans will not affect your credit.1

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.1
  • If the loan is not paid back before the policy owner passes, the beneficiary will only receive a portion of the death benefit.1
  • If the life insurance plan lapses, you may have to pay taxes on it since the tax structure will change.1

Reasons to borrow against life insurance

Here are some instances where borrowing money against your life insurance policy may make sense:

  • You need cash quickly: Borrowing from your life insurance policy loan can allow you to receive funds quickly and easily, since there are typically no minimum income requirements or hard credit checks involved.

  • You don’t want to use other assets as collateral: If you want to avoid using your house or car as collateral for a loan, borrowing against life insurance may be a good alternative. With this type of loan, your policy will serve as the collateral.

  • You want a flexible repayment schedule: Life insurance policy loans typically come with flexible repayment schedules, meaning you can pay back what you owe at your leisure. But keep in mind that your loan amount shouldn’t exceed your cash value, or your coverage may lapse.

How soon can I borrow against a life insurance policy?

Once you’ve built up enough cash value to cover your desired loan amount, you can borrow money from your life insurance policy. The amount of time it will take to accumulate the funds depends on your policy’s structure, but it may take a few years to build up enough cash value to take out a policy loan.

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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