How to Borrow Against Life Insurance

How Can I Borrow Money Against My Life Insurance Policy?

Borrowing against life insurance can be a useful way to get money to pay for emergencies, education, a home renovation, and more. However, it isn’t possible with every type of policy. Let's dive deeper into if you can borrow against life insurance and how a life insurance policy loan works.

3 Min Read

Table of Contents

Key Takeaways

You can only borrow against a life insurance policy that has cash value, which is typically only permanent life insurance polices.¹
Borrowing from a life insurance policy can give you access to needed cash now, but it also carries risks, including needing to make a monthly loan payment and the potential of losing the policy if you default on the loan.
Aflac offers whole life insurance policies with lifelong coverage and cash value that you can borrow against.

Can I borrow against my life insurance policy?

You can borrow money against permanent life insurance policies that have cash value. Permanent life insurance policies stay in place for the duration of your life, as long as you pay premiums. They are different from term life insurance policies, which only provide coverage for a specific amount of time. 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

How can I get a life insurance loan?

You can take out life insurance loans against the value of the death benefit within a life insurance plan, which is the portion of money paid to the beneficiary when the policyowner dies.¹ This is the amount that accrues cash value, and the amount you can borrow depends on how much cash value you’ve accrued and the insurer’s rules. However, policyholders can often borrow up to 90% of their cash value.¹ 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

Peace of mind doesn't have to break the bank

Don’t wait until it’s too late. Help cover yourself and your family with coverage from Aflac.

Get Started

Reasons to borrow against life insurance

Some instances where borrowing money against your life insurance policy may make sense include:

You need cash quickly: Borrowing from your life insurance policy loan can allow you to receive funds faster than a personal loan. Since you’re working directly with the insurance provider, 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 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.

When 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.

Pros and cons of getting a life insurance loan

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 loan payments in a timely fashion, you may lose your life insurance plan.¹
If the life insurance 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 policy lapses, you may have to pay taxes on it since the tax structure will change.¹

Aflac whole life insurance offers cash value

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 offer competitive coverage, 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.

Get Started