How Soon Can You Borrow Against A Life Insurance Policy?

If you have a cash value life insurance policy, such as universal or whole life insurance, you may be able to borrow against it once the cash value reaches a certain threshold. However, it may take several years for your policy to accumulate enough value for a policy loan or withdrawal. In this article, we’ll discuss what you need to know about borrowing against your life insurance policy.

Table of Contents

Cash Value Life InsurancePolicy LoansAdvantages of Policy Loans
Disadvantages of Policy LoansApplying for a Policy LoanRepayment

Cash Value Life Insurance

To borrow against your life insurance policy, you must have cash value life insurance, such as universal or whole life insurance. These policies build a cash value over time, which operates as a tax-deferred savings or investment account. Not all life insurance policies have a cash value to borrow against, which is one of the main differences between term and permanent life insurance.

If you have a convertible term life insurance policy, you can upgrade to whole or universal life insurance without undergoing a new health exam.

Policy Loans

Policy loans allow you to borrow money from the insurance company using your policy’s death benefit and cash value as collateral. You cannot borrow against term life insurance, but you may be able to convert your term policy to a permanent one, which would open the door to borrowing money in the future.

The minimum cash value required for a policy loan varies by insurer. You can check your policy documents or ask your insurance agent for specific details. The approval process typically involves submitting a simple form and verifying your identity.

Advantages of Policy Loans

Policy loans have fewer credit and tax implications than other loan types. The IRS does not recognize policy loans as income, making them a tax-free funding source. You can use the money however you like, and you will not be tied to a strict repayment schedule. The loan will not affect your credit score, nor will your credit score affect the loan’s interest rate. You can obtain a policy loan without undergoing employment verification or a credit check. Policy loans also tend to have relatively low interest rates.

Disadvantages of Policy Loans

During the repayment period, your coverage amount drops. If you die before repaying the loan, your loved ones will not receive the full death benefit of your policy. Failure to repay the loan could also have other consequences. As interest accumulates, it will be added to your loan balance. Eventually, the outstanding balance could exceed the cash value of your policy, causing a lapse that leaves you without insurance coverage. If your policy lapses during the repayment period, you could end up owing income tax on the amount borrowed.

Applying for a Policy Loan

You can apply for a policy loan online or by filling out a paper form. The insurance company will likely require you to confirm your identity, but you do not need to undergo a credit check or any type of income or employment verification. The process is typically quick and relatively informal.


Policy loans do not have a fixed repayment schedule. It’s important to keep up with your premium payments and at least make regular interest payments to avoid owing income tax on the amount borrowed.


You can only borrow against your policy if you have a permanent policy with a cash value component, such as whole or universal life insurance. Term life policies do not qualify, as they do not have a cash value. How much money you can borrow from your life insurance policy depends on the cash value of your policy and the limit set by your insurer.


Borrowing against a life insurance policy could be a better option than using a credit card or applying for a personal loan to cover a large expense. However, it’s important to fully understand the terms of your policy and the tax implications before making a decision. We recommend that you discuss your needs and goals with a financial advisor or estate planning attorney.

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