How to Borrow Against Your Life Insurance

How can I borrow against my life insurance policy? It is without a doubt that when you do not have a life insurance policy, your loved ones have no financial security after you leave the earth. But what if I told you that you could even use your asset before you depart for another world?

How to Borrow Against Your Life Insurance

Yes, if you have an insurance quote with a cash value component, you can borrow from the quote. However, you need to make sure that you have a permanent type of life insurance. Nonetheless, borrowing from your life insurance is cheaper than traditional personal loans. It also has better flexibility when you want to make a repayment.

How Does Borrowing Against Your Life Insurance Work?

You may be curious: How does borrowing from life insurance work? Well, here is everything you need to know. If you have a cash value for your life insurance quote, the insurer or insurance company can allow policyholders to borrow against this value. The borrowing process is, however, quite straightforward.

All you need to do is ask for a loan by filling out the paperwork and checking the terms and conditions of the loan. If you are approved, you will be credited in a few days. But ensure that you are diligent before you sign for the loan. Although you may need to pay interest, make sure that you check the rate and compare it with other traditional loan offers.

Types of Life Insurance You Can Borrow From

It is important to know what type of life insurance you can borrow. Besides, you can only borrow from any permanent life insurance. Permanent policies have a cash value against which you can borrow, unlike term life insurance. These types of policies are available in different forms, which include:

  • Variable life
  • Participating whole life
  • Non-participating whole life
  • Universal life

This means that if you have any of the types of insurance mentioned above, you can borrow from and against them.

Pros and Cons of Borrowing Against Your Life Insurance

What are the pros and cons of borrowing against your life insurance? Here is what you are looking for:


  • No hard credit checks.
  • Your family does not need your death benefit anymore.
  • You do not need to be qualified to borrow.
  • Your policy will be used as collateral.
  • You can pay it back anytime.
  • Low interest rates.


  • Your life insurance policy benefits may lapse.
  • If you do not pay back the loan on time, you may incur tax penalties and lose your life insurance policy.
  • Until your cash value has been built over time, you cannot borrow.
  • No more death benefits.

How to Borrow Against Your Life Insurance

Now that you have learned how it works, the type of life insurance you can borrow from, its advantages and disadvantages, and how much you can borrow, it is time to learn about the application or the borrowing process. So, if you are interested, here is what you need to do:

Get in Touch with Your Life Insurance Company About Your Eligibility

Before you begin to consider applying for a loan from your life insurance, you need to contact your insurance company first to find out if you are eligible, qualified, or not. Keep in mind that the eligibility criteria will differ.

Find Out How Much You Can Borrow

Next, find out how much you can borrow. You can find out when you ask your insurance provider about your eligibility. Most insurance companies allow policyholders to borrow up to 90% of their cash value.

Compare the Pros and Cons of Borrowing Against Your Life Insurance Before Proceeding

This is another important procedure before borrowing against your life insurance policy. By doing this, you will be able to find out the benefits and risks involved in the whole process, which will also help you with decision-making.

Compare Loan Terms and Interest Rates

Comparing the loan terms and interest rates is paramount. Every insurer’s loan term and interest rate differ, and when you compare, you will be able to find the best one for you and your family.

Complete Your Application

Once you have done the necessary things, you can then proceed to apply. All you will have to do is inform the insurance company that you wish to make use of a life insurance quote as collateral for the loan.

Wait to Be Approved and Get Fund

You will have to wait patiently for approval before you can receive the funds. Besides, the timeline is different between lenders.

Begin to Repay the Loan on Time

After you get approved and receive the funds, you should start making plans to pay back the loan on time to avoid default, which can lead to some negative situations.


What Does It Mean to Borrow Against Your Life Insurance?

Borrowing against your life insurance means taking out a loan using the cash value of your permanent life insurance policy as collateral.

Can I Borrow Against My Life Insurance Policy?

Firstly, if you want to borrow against your life insurance policy, you need to make sure that you have life insurance with a cash value. For instance, if you have whole life insurance or universal life insurance, a portion of your premium payment will go to cash value, which functions as an investment account or tax-deferred savings account.

So, if your cash value reaches a particular threshold, you can borrow or withdraw from the account. However, remember that it might take a certain number of years from your quote to gather enough value for a withdrawal or loan.

How Much Can I Borrow Against My Life Insurance?

Normally, life insurance companies allow policyholders to borrow or collect a maximum percentage of the cash value of their quotes. Sometimes, it is around 90%, but it may be lower or higher depending on your insurer.

Although you have access to 90% of your total cash value, it is not advisable to borrow such an amount. This is because overborrowing can increase the risk of nullifying your account or decreasing your benefit value.

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