How Do You Borrow Against Life Insurance?

So how do you borrow against life insurance? Well, you can borrow against permanent life insurance policies by using the policy's cash value as collateral instead of going to a bank. To borrow against life insurance, your policy must have built up cash value, typically in a whole life or universal life format. Contact the insurer or your advisor, request a policy loan, and the company lends you money with the cash value as security. The insurer charges interest and you're not required to make fixed payments, but any unpaid interest and principal reduce your available cash value and death benefit. If the loan plus the interest ever approaches the total cash value, the policy could lapse, causing taxes and loss of coverage.

So here are three bullet takeaways. One, only policies with cash value can be used for policy loans. Pretty obvious. Number two, the loan is secured by your cash value. There's no credit check. Interest is charged and unpaid balances reduce the death benefit. Three, poorly managed loans can cause the policy to lapse and may trigger taxes, so a clear repayment plan is highly advised.

If you want to look up some related glossary links: cash value life insurance, policy loans, loan interest, surrender value, policy lapse. Thanks for watching.