What Type Of Life Insurance Can You Borrow From While Alive?

Life insurance policies can be a valuable asset in times of need, and it’s a popular myth that you cannot access them while you’re alive. However, you can potentially tap into your life insurance while you’re alive, but it depends on the type of policy you have.

Types of Life Insurance

Policy Type Cash Benefit
Whole life insurance (permanent) Allows access to the cash portion of your account while you’re alive.
Term life insurance (temporary) Does not have a cash element for policyholders to access.

Whole life insurance policies are typically more expensive than term plans because of the cash factor. However, you’ll need an adequate cash amount in the account before you can use it, and it takes time to build that up.

If you have a policy that has a cash element to it, you could surrender it and withdraw the entire existing cash value. But, this assumes that you have built up enough value in the policy over time so that there’s actually something substantive to take out. If both of those qualifications have not been met, you won’t be able to use your life insurance while you’re alive.

If you don’t want to surrender your policy, you may be able to take out a loan on the existing cash amount. However, the amount you ultimately owe on the policy’s outstanding principal (and interest) will be taken from the death benefit before your beneficiaries receive it.

Using life insurance as a backup cash resource may be a better option than using a credit card or taking a personal loan because you won’t have your credit checked in order to get the funds. You’ll probably have better repayment terms, too.

In summary, it’s a popular myth that you can’t use your life insurance while alive. Not only can you potentially use it, but it may also be a better vehicle than other forms of credit. Keep in mind that the benefits afforded by a life insurance policy will vary based on the type of policy and which options you chose when buying your coverage.

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