Financial Planning

Leveraging the Cash Value in Your Life Insurance Policy

You can take out a loan against the cash value of your permanent life insurance policy, but there are important things you need to know, like loan repayment, before doing so.

Tapping Into Your Money: Using the Cash Value In Your Life Insurance Policy

If you're thinking about accessing some of the cash in your permanent* life insurance policy, there are a few things you should know.

One of the benefits of owning a permanent life insurance policy is the cash value that can accumulate. With life insurance such as whole life, universal life insurance, or variable universal life, a portion of your premium is credited to the policy's cash value and can be used while you're alive and in a variety of different ways.

You can:

  • Take out a policy loan that borrows against your policy's cash value when you need money.

  • Adjust your premiums - within the limits of your contract.

  • Let the cash value grow and use it to supplement your income in retirement.

What you should know about policy loans

Unlike a conventional loan from a bank or credit union, you don't have to pay back a life insurance policy loan. But keep in mind that as long as your policy is in force, the loan interest will continue to build and be added to the loan balance.

It's important to note that the money you borrow and don't pay back (including the interest accrued) will be deducted from your death benefit when you die, which means your beneficiary(s) will receive less. For example, let's say that you have a $250,000 policy and take out a $10,000 loan. If you died before making any loan payments, your beneficiary(s) would receive $250,000 less $10,000 (plus any accumulated interest).

As the cash value builds in your policy, it accumulates tax-deferred. However, the loan amount could be taxed if you were to surrender or lapse the policy before you finish paying it back. The taxable portion would be the difference between the loan amount and the total amount of premiums you have paid into the policy.

The bottom line

The purpose of a permanent life insurance policyis to provide your family with financial security when you die. Being able to take a loan against the cash value that accumulates in your policy can provide you with additional benefits while you're still living. But if you're thinking about a policy loan, be sure to get the facts and understand how they work.

Before taking out a policy loan, meet with your insurance agent or financial professional. He or she can run what's called an "in-force illustration” that shows the impact a loan will have on your policy over the years. And once your policy loan is active, make a calendar note to have your agent provide you with an illustration on an annual basis. By monitoring your policy loan every year, you can better manage your life insurance policy and loan.

To learn more about our types of life insurance, visit our learning center.

*As long as required premium payments are timely made

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Permanent Life Insurance Policy

A permanent life insurance policy can provide access to accrued cash value that can be accessible while you are living. This article highlights a few considerations that should be fully understood prior to making decisions that could impact your tax obligation and death benefit. For more information, visit our learning center.


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.

Learning Center articles may describe services and financial products not offered by Protective Life or its subsidiaries. Descriptions of financial products contained in Learning Center articles are not intended to represent those offered by Protective Life or its subsidiaries.

Neither Protective Life nor its representatives offer legal or tax advice. We encourage you to consult with your financial adviser and legal or tax adviser regarding your individual situations before making investment, social security, retirement planning, and tax-related decisions. For information about Protective Life and its products and services, visit www.protective.com.

Companies and organizations linked from Learning Center articles have no affiliation with Protective Life or its subsidiaries.

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