Policy Loan

A policy loan lets you access your Cash Value without removing it. The insurer lends you its money — up to roughly 90–95% of your cash value — holding your policy as collateral. Your cash value never leaves the contract: it keeps growing, keeps earning dividends, keeps compounding as if untouched (fully untouched in Non-Direct Recognition companies; with adjustments in Direct Recognition ones).

The process is unlike any bank borrowing you've done: no application, no credit check, no income verification, no impact on your credit report, no questions about purpose. You request the loan; money typically arrives within days. There is no mandatory repayment schedule — you set the terms, because you're effectively both borrower and (economically) lender. Unrepaid balances plus interest are simply deducted from the Death Benefit at claim time.

Interest is real and typically 4–8% depending on carrier and contract, but the net cost is the spread: you pay loan interest while your full cash value continues earning its guaranteed rate plus dividends. In many years that spread is near zero or positive. Compare that to a bank loan, where the interest leaves your world forever, and you have the arithmetic heart of Infinite Banking.

Discipline separates a banking system from a slow leak. Repay loans on a schedule you set — the payments refill your borrowing capacity and keep the system healthy for the next use. The failure mode to respect: a large loan left compounding unpaid inside a policy that later lapses triggers income tax on the gains (see the same trap in Modified Endowment Contract (MEC) policies, where loans are taxable from day one).

Also worth knowing: some banks lend against cash value directly (cash value lines of credit) at competitive rates — see Collateral Assignment — giving a second borrowing channel against the same asset.