How Soon Can You Borrow From Whole Life Insurance?

Whole life and universal life insurance policies are more expensive than term, but have no pre-determined expiration date. The policy remains in force for the lifetime of the insured if sufficient premiums are paid. The purpose of the cash value is to offset the rising cost of insurance as you age, so premiums can remain level throughout life. Money paid into the policy that exceeds the cost of insurance builds in a cash value account that’s part of the policy.

Policy TypeCash Value Growth Rate
Regular universal lifeBased on current interest rates
Variable universal lifeInvested by the owner in the stock market

It usually takes at least a few years for the cash value to build to sufficient levels to take out a loan. When borrowing on your policy, no explanation is required about how you plan to use the money, so it can be used for anything. The loan is not recognized by the IRS as income and remains tax-free as long as the policy stays active. The interest rates are typically much lower than on a bank loan or credit card, and there is no mandatory monthly payment.

However, a policy loan reduces your available cash value and death benefit. If you pass while owing money on a life insurance loan, it will reduce the amount your beneficiaries receive. It’s important that you pay the loan back in a timely manner, on top of your regular premium payments. If unpaid, interest is added to the balance and accrues, putting your loan at risk of exceeding the policy’s cash value and causing your policy to lapse. If that happens, it’s likely you’ll owe taxes on the amount you borrowed.

You can borrow from permanent life insurance policies that build cash value, such as whole life and universal life (UL) policies. You cannot borrow against a term policy since there is no cash value associated with it. You can borrow from a life insurance policy as soon as there is enough cash value built up to take a loan in the amount you need, which can take several years to accrue.

Policy loans can be useful financial tools, but they can also create financial turmoil. Be sure to thoroughly consider the pros and cons of life insurance policy loans in the context of your situation before taking one out.

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