MHG Insurance

Can I Borrow Against My Life Insurance Policy?

869469156Have you ever needed to borrow money? Chances are that you have. At some point in life, everyone finds themselves in a situation where they may need to take out a loan, borrow money from their parents, dip into their savings, etc. It’s part of helping yourself get squared away, or getting to the next level, or maybe even just to stay afloat. Many don’t want to put themselves into debt, and sometimes there is no other option. But what if I told you that you can borrow money from your Life Insurance policy? Now do I have your attention?

Well, Can I?

Yes, you can borrow money against your life insurance policy. It is a quick and easy way to get cash when you need it most, with no explanation needed of how the money will be used. Also, unlike bank loans, a policy loan has no effect on your credit, and if you can believe it, you don’t have to go through a credit approval process or credit check. This is because you are essentially borrowing money from yourself. However there are some specifics to note before you make the decision to contact your insurance agent.

The Specifics

For those of you who are thinking about borrowing money from your life insurance policy, let’s not get ahead of ourselves. First, you need to know that this can only be done with a permanent or whole life policy, not a term policy. A whole life policy typically has a higher monthly premium than a term policy, partly because it lasts for life. Part of those monthly premiums will collect as cash value that you can have access to. Keep in mind it can take quite a few years to build any cash value, so it may be significantly lower than the total of your premiums payments.

Once you have enough of a cash value built up, then you can borrow money. Unfortunately, you can’t go and purchase a life insurance policy right now and take out a loan tomorrow. However, this may be the little push you needed to get life insurance if it was something you have been putting off. It should be said that it isn’t a good idea to get life insurance coverage just for loan purposes, or trying to beat the system. This is just one of many benefits for those who make the decision to get coverage.

The Fine Print

It should also be noted that depending on your loan, it will still be expected to be paid back with interest, much like a bank loan. Typically the loan can be paid back with lower interest rates and a more flexible schedule, however it should still be paid in a timely manner. Some loans won’t require you to payback, however the loan amount will be deducted from your death benefit. There will also be interest to pay in this case. Even better news, the loan is not recognized by the IRS, so it will be tax free. The only way you will have to pay taxes on the loan is if the policy lapses, then you must pay taxes on the full amount of the cash value.

For more information on life insurance, be sure to read our previous blog, “Should I Purchase Life Insurance in My 20’s?” If you are interested in purchasing life insurance, or have any questions about your policy, or which policy would be best for you and your family, contact us at 954-828-1819 or visit us online at We have the insurance specialists to assist and advise you on the best coverage for you and your loved ones at every stage of life.