Important Facts

Borrowing Against Your Life Insurance Policy

Sometimes, it may be a good option to take a loan out against your life insurance policy. The effect of Life insurance loans on your policy will depend on various factors. Learn more about how you can take out a loan from your life insurance policy in this article. 

Life Insurance Loans

If you need cash, you may be able to take out an insurance loan by borrowing against your life insurance policy. However, having the ability to get money by way of an insurance loan depends on certain factors.

The type of policy you own

First of all, what type of life insurance policy do you own? Being able to take insurance loan from your policy can only happen if you have a permanent* life insurance contract such as whole life or universal life. Why? Because unlike term insurance, these types of policies have the potential to accumulate cash value over time that you may be able to borrow from at some point in the future.

How long your policy has been in force

The possibility for your permanent life insurance policy to grow enough in cash value to where you may be able borrow money from it doesn't happen immediately. In fact, insurance companies make no guarantees as to how quickly or even how much the cash value (if any) in your policy will increase over time to where you'll be eligible to take out an insurance loan.

Your policy's guidelines

Having a permanent life insurance policy doesn't necessarily mean that you borrow as much money as you like. Depending on your policy's guidelines, you may only be permitted to borrow against your policy if there is a certain dollar amount of cash value growth, and even then only be allowed to borrow a certain percentage of the available funds.

Your ability to pay back the loan

While life insurance loans don't require that you pay back what you borrowed, it's to your benefit that you only borrow what you can pay back in a reasonable amount of time - for two reasons. First, you'll pay interest on the money you borrow. Second, if you should die before paying back the loan, the face amount will be reduced at the time the claim is made in order to satisfy the outstanding loan. That means that your beneficiary(ies) will receive less of a financial benefit upon your death.

Before taking out an insurance loan, it's important to consider all your options. Talk to your life insurance agent or financial advisor if you're unsure if a life insurance policy loan is right for you.

*As long as required premium payments are timely made.

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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

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Life Insurance Loans

Do you need cash and are thinking about borrowing from your life insurance policy? While life insurance loan policies can be a resource when you need money, whether or not you can borrow against your policy depends on certain factors. This article provides information about life insurance loans and some of what you'll need to know when it comes to borrowing from your policy.  For more information, visit the Protective Life Learning Center.