Is borrowing against life insurance allowed? It’s a popular question among policyholders, and understanding the basics can help you determine if it might be an option for you. There are pros and cons to consider before making any decisions. However, it’s important to understand the full picture before taking out any loans.

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What is Life Insurance?

Life insurance is a contract between an insurer and a policyholder that provides financial protection to the policyholder’s family in the event of their death. It pays out a lump sum, known as a death benefit, if the policyholder dies during the policy’s term. The coverage depends on what type of life insurance you have purchased and how much you have paid.

How to Get a Life Insurance Policy Loan

Getting a loan against your life insurance policy is typically a straightforward process. However, there are several steps to take before you can qualify for one. First, you need to be sure that your policy allows for loans and check the terms of your particular contract. If you qualify for a loan, you’ll generally need to go through your insurer’s application process, which may require providing certain documents such as proof of identity and income information. Once approved, the loan funds will be transferred directly into your account within 7-10 days.

Policies You Can Borrow From

Though some exceptions exist, most life insurance policies will allow you to borrow against them. Whole life insurance policies are typically the most flexible when taking out loans, as they often include a cash value component that can be borrowed from.

Some term life policies may also offer loan options, though depending on your policy type, interest rates may be higher, or other restrictions could apply. It’s important to speak with your insurer to determine what types of loans you may qualify for and ensure that you understand all the terms before taking out any money.

borrowing from life insurance

How a Life Insurance Loan Works

It’s a relatively straightforward process that can make it easy to access extra funds in times of need. When you take out a life insurance policy, you essentially contract with an insurer. Depending on the type of policy you get, there may be provisions for borrowing from the policy’s value, either through interest rates or loans.

If your policy allows for it, you’ll generally need to go through a formal application process that requires providing basic information and documents, such as proof of identity and income. Once approved, the loan funds will typically be transferred directly into your account within 7-10 days.

It’s important to check with your insurer before taking out any money to ensure that your policy allows for loans and to review all the terms involved; this will help ensure that you understand everything before moving forward. With proper research and preparation, getting a loan against your life insurance policy can be an efficient way to access additional capital in times of need.

How Much Can I Borrow Against my Life Insurance Policy?

When it comes to borrowing against your life insurance policy, the amount you can borrow depends on a variety of factors. These may include the type of policy you have, the amount of coverage you have, and how long you’ve been paying premiums. Generally, the maximum amount you can borrow is a percentage of your policy’s cash value.

Paying Back The Loan

It’s important to remember that a life insurance policy loan is not free money, and it must be repaid. Most policies require you to make payments within 30 days of taking out the loan. If you fail to make your payments on time, your insurer may charge you additional fees and interest. Any unpaid balance will be deducted from the death benefit when the policyholder dies.

Budgeting carefully when taking out a loan against your policy is essential, as missing payments could have serious consequences. If you need help to make the payments on time, contact your insurer as soon as possible so they can work with you to come up with a solution. Taking out a life insurance policy loan can be a great way to access additional funds, but make sure you know all the terms and conditions before agreeing to anything.

borrowing against life insurance

Pros of Life Insurance Loans

  • Flexible interest rates and repayment terms
  • Not subject to a credit check or other rigorous application processes
  • It has no impact on other financial services or programs
  • It provides additional peace of mind and financial security

Cons of Life Insurance Loans

  • Must review all details of the policy before taking out a loan
  • Could incur additional fees or penalties for late or missed payments
  • Borrowing from the policy can reduce its value and could affect your beneficiaries’ benefits
  • It can be difficult to track repayments if there are multiple loans associated with the policy

Image of a life insurance policy and a loan agreement

Other Ways to Access Cash Value From a Life Insurance Policy

Other than borrowing against the cash value, there are three prevalent methods to access your universal or whole life insurance policy’s funds: cash surrender, withdrawal of dividends, and policy loans.

Cash Surrender: A cash surrender allows you to terminate your policy and receive the entire amount of funds that have been accumulated. This is an especially useful option for those who no longer need their policy or are facing financial hardship and need access to quick funds.

Dividend Withdrawal: If your policy is a dividend-paying whole-life insurance policy, you can withdraw dividends at any time. This is a more conservative approach than taking out a loan, as it allows you to keep your death benefit intact while still accessing funds from your policy’s cash value.

Policy Loans: As mentioned above, borrowing from your policy’s cash value with a policy loan is another option to access funds. As long as you meet all the requirements and understand the terms of the loans, this can be a great way to get quick access to extra funds.

What About a Viatical Settlement?

A viatical settlement is a transaction in which a life insurance policyholder sells their policy to a company in exchange for a lump-sum cash payment. In order to qualify for a viatical settlement, the insured must have a policy of at least $150,000 or more and be diagnosed with a serious illness such as Cancer or ALS.

American Life Fund is a leading provider of viatical settlements. Complete our simple form to see if you qualify, or give us a call today at 877-658-1360.


No matter what your financial needs are, it’s important to take the time to explore all available options to access funds from your life insurance policy before making any decisions. With careful planning, you can use your policy to your advantage and ensure that you and your loved ones are taken care of.

About the Author: Lacey

Lacey is a compassionate and dedicated marketing director at American Life Fund, a leading life and viatical settlement company. Lacey has made it her mission to help patients with life-threatening illnesses and their families get the financial support they need during difficult times.

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