How to Secure a Loan Against Your Life Insurance Policy

Getting a Loan Against a Life Insurance Policy

To borrow against your life insurance policy, you first need to confirm that your policy is a cash‑value type, such as whole or universal life. The insurer will allow you to take a loan against the accumulated cash value, subject to the policy's terms and the lender's underwriting criteria.

Eligibility and Documentation

Most insurers require a completed loan application and proof of identity. Some policies allow a self‑service online portal, while others may need a formal request form. The loan amount is limited to a percentage of the policy's cash value, often 90% or less, and the insurer will calculate interest based on the policy's loan rate.

Interest, Repayment, and Impact on Death Benefit

Interest accrues from the date the loan is disbursed and compounds if unpaid. If the loan remains outstanding when the insured dies, the death benefit is reduced by the outstanding loan balance plus accrued interest. Early repayment reduces the interest burden but may incur a prepayment penalty in some policies.

Steps to Apply for the Loan

• Review your policy statement to confirm cash value and available loan limit.
• Contact your insurer's loan officer or use the online portal to submit a loan request.
• Provide any required documentation, such as a copy of the policy, proof of income, and identification.
• Receive approval and disbursement, typically within 5–10 business days.
• Keep a record of the loan agreement and schedule for repayments.

Key Considerations Before Borrowing

Assess whether the loan's interest rate is lower than other borrowing options. Evaluate how a large loan might affect the policy's growth potential and your future death benefit. Consider consulting a financial planner to understand the long‑term implications.