Which Life Insurance Policies Offer Borrowing Options

Borrowing Basics

Only permanent life insurance policies that build cash value allow policy loans. Term policies have no cash value and cannot be borrowed against.

Whole Life Insurance

Whole life is a traditional permanent policy with a guaranteed cash value. Policyholders can borrow against this cash value, usually at a fixed interest rate.

Universal Life Insurance

Universal life offers flexible premiums and a cash‑value component that grows with interest. Loans can be taken from the accumulated cash value, and the policy's death benefit adjusts if the loan balance grows.

Variable Life Insurance

Variable life combines life coverage with investment accounts. The cash value is invested in sub‑accounts; policyholders can borrow against the total account value, but loan interest may vary with market performance.

Considerations When Borrowing

Loans reduce the policy's death benefit and cash value. Interest accrues if unpaid, and unpaid loans can cause the policy to lapse. Borrowing is tax‑deferred, but the loan is not a taxable event unless the policy lapses.