Summary: You may be able to borrow against a life insurance policy that has accumulated cash value. This option is typically available through permanent policies like whole life insurance and offers no credit check, no required repayment schedule, and potential tax advantages. Like any financial strategy, it carries risks worth understanding before you use it.

Many people with whole life insurance think about it once: when they buy it. After that, it tends to sit quietly in the background with premiums going in, value building, death benefit waiting. What fewer people think to ask is whether that same policy could serve as a source of funds while they’re still living. Specifically, whether they can borrow against it.

What Is Dividend-Paying Whole Life Insurance?

Not all whole life insurance policies are structured to support this kind of borrowing. A standard whole life policy builds cash value at a guaranteed but modest rate — functional but not designed to be used as a financial tool during your lifetime.

Dividend-paying whole life policies, particularly those designed with specific riders to accelerate cash value growth, as in the Bank On Yourself® strategy, build usable cash value significantly faster than a standard policy. That’s what makes a policy loan a practical option rather than a last resort.

Can You Borrow Against Life Insurance?

Yes, you can borrow against a dividend-paying whole life policy, and this is known as a policy loan, sometimes also called cash value borrowing or equity borrowing. Once your policy has accumulated sufficient cash value, you may be able to borrow against it for any purpose, with no credit check, no approval process, and no fixed repayment schedule. Interest accrues annually based on your policy terms, and your policy continues to grow in the meantime.

How Much Can You Borrow?

The amount you can borrow depends on how much cash value has built up in your policy and how much it costs to keep that cash value invested within the policy and these two factors vary widely depending on the life insurer and plan design chosen by each individual client. A financial professional familiar with your policy can help determine how much money may be available before discussing other options.

When Can You Borrow?

You can borrow from your policy as soon as you have accumulated a cash value. You can take multiple life insurance policy loans at any time as long as there is cash value available. This means you do not have to pay a loan back in full before requesting another loan.

For example, let’s say you put a lump sum of $15,000 into your policy.  Thirty days later you can request a policy loan for $10,000. You will have approximately $5,000 left sitting in your cash value that you can request to borrow any time in the future, whether you have begun repaying your policy loan or not. The newly requested loan will be added to your original loan so you will always only have one loan outstanding.

Common Uses for a Policy Loan

• Pay off debt: Life insurance policy loans can be used to pay off credit card debt, car loans and personal loans.
• Buy a house: Some people use whole life insurance policy loans to buy their first home or refinance an existing mortgage on their primary residence.
• Cover your mortgage payments: Whole life insurance policies can be important for homeowners to protect their most important asset— their home, from foreclosure if they lose their job or have difficulty making payments due to unforeseen circumstances like health issues or death in the family.
• Finance business purchases or other major expenses.

Do You Have to Pay Back a Policy Loan?

You don’t have to pay the life insurance loan balance back and there is no required policy loan repayment schedule. You have the flexibility to repay on your own timeline rather than a lender’s.

That said, an unpaid loan balance will continue growing with interest, gradually reducing your policy’s cash value and death benefit. If the balance grows beyond what the policy can sustain, the policy may surrender and you could face a tax liability. This is manageable with proper planning, but it’s important to understand going in.

What Are the Risks of Borrowing Against Life Insurance?

Borrowing against your life insurance policy can be a flexible and tax-efficient way to access funds. Like any financial strategy, though, it comes with risks worth keeping in mind:

• Unpaid policy loan interest compounds over time, increasing your loan balance and reducing the net cash value of your policy.
• Your death benefit may be reduced by the amount of any outstanding loan at the time of your passing.
• Active management matters. This strategy works best as part of a broader financial plan, not as a one-time transaction.

Working with a qualified financial professional to monitor your policy’s performance and loan balance can help you use this strategy responsibly over time.

Is a Policy Loan Right for You?

Whether this approach fits your situation depends on your goals, your policy design, and your long-term plan. A policy loan can be a compelling tool, but it works best when it’s part of a deliberate plan.

At Intelliplan Financial, we work with clients in the Columbus, Ohio area and across the country to design policies built for this purpose from the start, including through the Bank On Yourself® strategy.

If you’re looking to pay off debt, supplement retirement income, or access funds without the friction of a traditional loan, a policy loan may be worth exploring. Schedule a call with our team to find out if it’s the right fit for you.

Frequently Asked Questions about Whole Life Policy Loans

Can you borrow against life insurance?

Yes, if your policy has accumulated sufficient cash value. This option is generally available with permanent life insurance policies such as whole life. The amount you may be able to access and the specific terms will vary by carrier and policy design.

How does a life insurance policy loan work?

A policy loan lets you borrow against the cash value in your whole life insurance policy. There is no credit check or approval process. You request the funds from your carrier, and interest accrues on the outstanding balance. There is no fixed repayment schedule, though actively managing the loan over time is important to protect your policy’s value.

Do you have to pay back a life insurance loan?

You are not required to repay a policy loan on a fixed schedule. However, unpaid loan balances accrue interest and can reduce your policy’s cash value and death benefit over time. If left unmanaged, the loan could eventually cause the policy to lapse.

How much can you borrow from a whole life insurance policy?

Carriers often allow you to borrow up to 85% to 90% of your policy’s available cash value, though this varies. A financial professional can help you determine how much may be available based on your specific policy and carrier terms.

What happens if you do not repay a policy loan?

The outstanding balance will continue to grow with interest, reducing both your cash value and death benefit. If the balance grows beyond what the policy can sustain, the policy may lapse, and you could face a tax liability on any gains at that point.

Is borrowing from life insurance taxable?

In most cases, policy loans are not taxable as long as the policy remains in force. However, if the policy lapses with an outstanding loan, you may owe taxes on any gains. Tax treatment depends on individual circumstances and current tax law.

Disclosure: Financial Planning and Advisory Services are offered through Prosperity Capital Advisors (“Prosperity”), an SEC-registered investment adviser. Registration as an investment adviser does not imply a certain level of skill or training. Intelliplan Financial and Prosperity are separate, non-affiliated entities. Prosperity does not provide tax or legal advice. Insurance services offered through Intelliplan Financial are not affiliated with Prosperity.