How to Borrow Against Life Insurance
[2023 Ultimate Guide]

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Updated: Apr 06, 2023
author photo Written by Louis BakerUpdated: Apr 06, 2023
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Are you having financial problems and have heard that a life insurance loan can help you solve your financial woes?

Since there are many requirements attached to applying for a life insurance loan you might not understand how this process of borrowing works.

Is borrowing against life insurance a suitable option for you?

In this article, we will explain how to borrow against life insurance in 2023 if you meet the conditions. However, if you are in urgent need of money, borrowing against life insurance might not be the best loan option for you.

Life Insurance Loan is a Good Choice if You Have a Significant Cash Value

Life Insurance Loan Features

  • Only permanent life insurance is available

    Not every life insurance policy offers a cash value component and if you want to borrow against your life insurance, you'll need to use your cash value as collateral.

    Only permanent life insurance offers this investment-like feature and perfect examples would be whole life and universal life insurance.

  • Enough cash surrender value

    Cash surrender value is the amount of money you'll receive if you need to terminate your life insurance policy before you die. It is important to note that this value might take years or even decades to accumulate, with the average being 10 years.

    The cash surrender value is determined based on factors such as the premium payments made, the length of time the policy has been in force, and the current performance of the insurance company's investments.

  • No credit check

    Unlike bank loans, cash-value loans do not appear on your credit report and do not require an application process. You are still eligible to borrow against the cash worth of your life insurance even if you have bad credit or none at all.

  • No timetable for repayment

    Unlike other loans, a life insurance loan offers you the flexibility to pay back a loan at your own leisure. This means when you want to pay back the loan you can do so on your own schedule.

    If you decide not to pay back the loan amount during your lifetime, the outstanding loan amount will be deducted from your death benefits.

  • Maximum loan amount

    Depending on your life insurance company, you can usually obtain a policy loan for up to 90% of the value of your policy.

  • Low-interest rates

    Loans from life insurance policies typically have interest rates lower than those of bank loans or credit cards. Interest rates generally range from 5% to 8%.

  • Policy still eligible to earn interest and dividends

    Despite the fact that the insurance company will charge interest on policy loans, you will still be paid dividends or interest on the amount you borrowed.


Cash value is something that is built into permanent life insurance policies. They are a sort of investment that allows individuals to grow their money while it's sitting in their life insurance.

This characteristic feature differentiates permanent life insurance from other types of life insurance like term life insurance.

4 Steps to Apply for a Life Insurance Loan

To be an eligible applicant for a life insurance loan you must have an insurance policy that includes a loan provision. Here are the steps you can take to apply for your life insurance loan today.

Step 1: Contact your Life insurance company

You can do this by sending an e-mail, contacting them on the phone, or requesting a loan application.

Step 2: Request an in-force illustration

An in-force illustration is essentially a play-by-play of how life insurance loans work with a specific policy. Every policy, whether universal or whole life, has its own set of rules for borrowing against life insurance.

An in-force illustration, for example, states whether interest is due in advance or in arrears (whether interest is tacked on upfront or at the end of the year).

It also explains how interest is calculated. It's usually daily, which is important to know because daily accrued interest adds up quickly.

An insurance policy's in-force illustration can also show the policyholder how their policy is expected to perform in the future based on certain assumptions. One major assumption that can be illustrated is the interest rate which can be fixed or variable.

Step 3: Fill out the loan application

The life insurance loan isn't like other conventional loans, it has its own unique application guidelines and policies. You have to carefully provide information like your policy number and loan amount requested.

Step 4: Submit the application form

After you submit your application form, you have to wait for approval. Loan monies are normally delivered within one to fifteen days. And because policyholders are basically borrowing against their own money, no credit check is required.

4 Steps to Borrow From Your Life Insurance Policy

Step 1: Figure Out If You Can Borrow With Your Current Policy

The first step is to confirm what policy you're on. You can do this by contacting your agent or by using your state insurance department's policy finder.

When your policy is confirmed, you'll need to check if your policy is a loan source, generally, only permanent life insurance has a cash value that can be borrowed from and if your policy doesn't have one, you won't qualify for the loan.

It's important to note that you also have to have a significant amount of cash value accumulated before you can borrow against it.

Step 2: Decide If the Loan Is The Right Choice For You

Once you've figured out your loan policy is applicable as a loan source, you have to consider the loan's long-term benefits and risks before you apply for the loan.

Life insurance loans are more lenient than conventional loans but they also come with their fair share of risks you have to weigh your options carefully before proceeding.

Step 3: Request the Loan Online

If you've decided to move forward with the loan, you'll need to contact your insurance company to obtain the necessary forms. Some insurance providers allow you to arrange for the loan over the phone but this is usually dependent on the loan amount.

Once you've been confirmed as the policy owner and your loan is approved, you can determine the payout method you'll find most convenient. The two most common methods are by check and in premiums.

Step 4: Stay Up To Date On Your Loan

Life insurance loans don't have monthly payment times and this makes them easy to forget. To keep track of your loan you can decide to schedule regular monthly payments and pay a yearly interest amount to prevent the loan from increasing.

Paying Back the Life Insurance Loan in 3 Ways

It's important to remember that, if loans are not repaid before the insured person passes away, the loan balance plus any interest outstanding is deducted from the amount the beneficiaries are expected to receive from the death benefits.

To avoid this happening, here are 3 easy and effective ways to pay back your life insurance loan.

Cash: In a perfect world, you would pay back your debt to the life insurance provider in cash. According to Flagg, "Repaying in cash raises the account value of the insurance and the death benefit by the amount of the repayment on a dollar-for-dollar basis".

Policy value: According to Flagg, a policy loan can be repaid with "extra" cash value if the charges being levied by the policy can be lowered and the cash value is then sufficient to meet the reduced costs.

However, he cautions that paying in this manner may result in a taxable event if the loan repayment amount exceeds the insurance cost or tax basis.

Death Benefit: If your policy loan balance is still unpaid at the time of your death, the death benefit will be reduced accordingly.

There will be a diminished benefit for your beneficiaries. However, this method of repaying policy loans is the most tax-efficient because death benefits are obtained tax-free (versus repaying with cash that has already been taxed or a withdrawal of excess cash value that could be taxed).

Borrowing Against Life Insurance is Not a Good Idea in 4 Cases

As a policyholder, taking out a life insurance loan in times of financial hardship might seem like a good idea however it comes with its own fair share of risks. Here are four cases where this type of loan might not be the best idea for you.

  1. You lack sufficient cash surrender value

    This means there may be little value to borrow against in the early years of the policy, and the policyholder has not saved up enough money to cover the amount requested on the loan.

    Cash surrender value is the amount of money that a policyholder can receive if they choose to terminate their permanent life insurance policy before it matures or the insured person passes away.

  2. You cannot afford to take the risk of policy lapse

    If your loan and interest exceed the cash value of your coverage or you're unable to pay back the loan for some reason, you could lose your coverage and the loan may lapse.

    This would result in the loss of the death benefit that your policy provides, which would leave your beneficiaries without financial protection in the event of your death.

  3. You are unable to take the chance of a lower reward

    If you don't pay back the loan throughout your lifetime, the amount you borrowed will be removed from your death benefit, and this will reduce the total amount your beneficiaries will receive upon your death.

    For example, if you have a life insurance policy of $300,000 and you borrow $100,000 against it, your death benefit will be reduced to $200,000.

  4. You need to take out a sizable loan

    If you haven't managed to build up your cash value over time, you can't borrow a significant amount from your life insurance policy. Only a specific portion of your cash value may be borrowed and it might not cover the expenses you planned out.

Other Faster and Larger Loans Compared with Life Insurance Loans

If you require a loan of more than $1000 or need a loan that can be approved that same day, you may need to explore alternative lending options such as Personal Loans™ or Cashusa.com. These loans are faster and easier to access.

Personal Loans™ – Get Money Up to $35,000

This lending platform is appropriate for individuals with bad credit and those seeking a personal loan to consolidate debt.

Personal Loans™ don't require a minimum credit score or collateral and offer loan amounts ranging from $1000 to $35,000. Their APR is also between 5.99% and 35.99%.


Loan amount $1,000 - $35,000
Est. APR 5.99% - 35.99%
Funding time Within 1 day
Min. credit score No minimum credit score is required
Loan Term 3 months – 72 months
BBB rating A-

4 Steps to Apply For a Personal Loan at Personalloans.com

Step1: Submit a Loan Request Online

You'll be asked to fill out general information on the loan request form and these may include:

  • Your standard personal information like your Name, date of birth, social security number, and contact information.
  • To verify you're a reliable lender they will require you to share information about your income and this usually includes details like your credit and bank account.
  • They'll want to know your reason for applying for the loan and other specific details about your loan request.

Step 2: Wait to Recieve Offers from Lenders

After you submit the loan request, persoanlloans.com takes the application and runs it through a proprietary algorithm. The algorithm is designed to connect borrowers to lenders, it eliminates the pain of having to manually go from lender to lender to find a suitable match.

Step 3: Review and Accept Your Loan Terms

Read through each offer you receive carefully and fine-tune it to your taste. If you're not happy with an offer you've received and you're finding it difficult to modify, you can always reject the offer and request another one.

Step 4: Recieve Your Loan

Once you've modified the deal to your taste, you can sign in and receive your loan. Personal loans are fast loans and are usually sent to your account within the next business day, but this time is solely dependent on the lender.

Cahusa.com – Get Money Up to $10, 000

This lending platform is good for people with poor credit or no credit history at all. Applying for a personal loan and a small installment loan is quick and easy with Cashusa.com.


Loan amount $500 - $10,000
Est. APR 5.99% - 35.99%
Funding time Within 1 day
Min. credit score No minimum credit score is required
Loan Term 3 months – 72 months
BBB rating A-

Apply for Cahusa.com within 4 Steps

  1. Fill out their safe online form.
  2. Examine the loan offer given if you are connected to a lender. If no lender grants you a loan, you may receive offers for debt relief, credit repair, or other comparable services.
  3. If you accept the offer, you may be required to furnish the lender with additional information.
  4. If approved, cash will be deposited into your account as soon as the next business day.

Life Insurance Loan FAQs

Q1: Are there other alternatives to access cash value from a life insurance policy?

Cash-value Life insurance allows policyholders to access cash accumulations through withdrawals, policy loans, or partial or complete surrender. Another option is to sell your insurance for cash, a process called a life settlement.

Q2: What age is best to buy whole life insurance?

The right age to get whole life insurance varies from person to person and on financial circumstances, but according to progressive.com, the best age to buy whole life insurance is between 30-60 years.

Life insurance becomes more expensive as you age and the younger you are at the time you purchase the plan the less expensive it will be.

Q3: How does a life insurance loan affect your policy?

Your policy gets affected when you take on a life insurance loan because you're using your cash value as collateral. This means if you don't pay back the loan during your lifetime, it reduces the death benefits on your policy.

Q4: How soon can you borrow against a life insurance policy?

Once a life insurance policy has accrued enough cash value to allow you to take out a loan in the required amount, you are able to borrow against it. This may take several years to accumulate, depending on how your policy is set up.


Borrowing against life insurance is a good option for anyone who isn't looking for a fast loan. However, before applying for this type of loan, it is vital to weigh your financial needs carefully because it comes with its pros, cons, and risks.

Important risks include a reduction in the death benefit if the loan isn't paid back and an accumulation of interest on the loan over time which can also be deducted from the death benefits.

author photo

Written by

Louis Baker


Louis Baker started his career in 2017 by contracting with Experian. He also became a part-time content creator in various fields such as insurance, personal finance & investment, etc.

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