If you are in need of money for an emergency, a life insurance policy gives you the option to borrow up to a certain amount. This fails if your policy has not accrued enough cash value, meaning you cannot borrow money from your life cover. And when this happens, the next alternative may be evaluating unsecured personal loans products from online lenders like CreditCube.
Life cover loans are often considered first by most borrowers because eligibility is based on available cash value. Hence, replacing the traditional lending criteria, though repayment obligations and policy risks still apply. However, they should still be used carefully. And this is because borrowing can affect your coverage and the amount your beneficiaries may receive.
If you want to understand life protection plan loans in detail, this post explains everything you need to know.
Can You Borrow Money From Your Life Insurance?
Yes, you can borrow money from your life insurance if you have a permanent policy with enough cash value. This type of coverage serves a dual purpose by providing a death benefit and acting as an accumulation asset. And it is evident in policies like
Whole life insurance
Universal life insurance
Variable universal life insurance
Indexed universal life insurance
Note: You cannot borrow from term life cover because it does not build cash value. Term life only provides temporary coverage for a specific period without saving any equity.
How Borrowing Money From Life Insurance Works
Imagine your cash value has grown to $15,000, and you need a loan of about $5,000. The insurance company will give you the loan, but if you fail to pay it before you die, the money will be deducted from the amount your beneficiaries will be receiving. This is why you are not getting a loan if your policy has not accrued enough cash value.
Below is an overview of how borrowing money from life coverage works.
First, you have to wait for your life insurance policy to build up a cash value balance.
Apply for the loan.
There is no traditional credit-based underwriting, so your credit score will not impact your approval or your interest rates.
Remember, the built-up cash value acts as the required collateral to secure the debt.
If you do not repay the debt, it will be deducted from the final death benefit.
What Types of Life Insurance Let You Borrow Money?
Not all life insurance policies allow you to borrow against the accrued balance. The table below shows which policy types allow borrowing and which do not.
| Policy Type | Can You Borrow Money? | Top Reasons |
| Whole life insurance | Yes | Builds guaranteed cash value over time. |
| Universal life insurance | Yes | Builds flexible cash value based on current interest rates. |
| Variable life insurance | Yes | May build investment-based cash value via sub-accounts. |
| Indexed universal life | Yes | May build an index-linked cash value tied to market performance. |
| Term life insurance | No | Has no cash value and only provides temporary coverage. |
How Much Can You Borrow From Life Insurance?
You can borrow up to 90% of the accumulated cash value (Guardian and Allstate confirm this) from a permanent life cover policy. Interest rates vary depending on the insurer and policy terms, which can be lower than traditional personal loans. But interest accrues, and unpaid balances can reduce the final death benefit.
The exact amount you can secure depends on:
Current cash value accumulated in the policy
Specific loan provisions outlined in your contract
Any existing loans or outstanding liens
Policy age and duration of premium payments
Internal insurer rules and minimum buffer requirements.
How Soon Can You Borrow Money From Life Insurance?
You can borrow money from a life insurance policy once it accumulates enough cash value. Hence, the exact timeline depends heavily on your premiums, the specific policy type, and internal insurer rules. Progressive and Guardian confirm that newer policies may take several years to accrue enough value for borrowing.
Pros of Borrowing Money From Life Insurance
When you need fast cash, using a policy that has accumulated enough cash value offers several advantages.
No traditional loan application in many cases
No hard credit inquiry in many cases
Flexible repayment
Potentially lower interest than credit cards
Can be used for many purposes
May not affect the credit score directly.
Risks of Borrowing Money From Life Insurance
There are risks associated with taking a loan from your permanent life insurance coverage. These include:
If you fail to pay back what you borrowed, it reduces the final death benefit.
The interest rate applied to your loan compounds annually if you do not make regular interest payments.
The policy may lapse if the loan balance grows too large.
Borrowing can weaken the original purpose of a life protection plan.
Tax consequences may occur if the policy lapses or is surrendered.
Should You Borrow Money From Life Insurance?
Borrowing money from your life coverage should be influenced by the purpose or what you need the money for. But ensure to balance your immediate need for cash against your family’s long-term financial safety.
| When it makes sense to borrow from your life insurance policy. |
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| When it does not make sense to borrow from your life insurance policy. |
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What If You Cannot Borrow Money From Life Insurance?
It is not everyone who qualifies for a life insurance loan. It is either because your policy has low cash value or you are on only term coverage. But that does not mean you cannot get the funding you seek.
You can apply for a personal loan offered by different online lenders, even with a bad credit score. Just remember that you need to compare each funding option before chasing these loans.
Although these types of loans may have higher guaranteed approval chances, you need to compare each offering before applying. This is because most of these online lenders still need to review income, identity, and repayment ability, and these determine how fast a loan is approved.
Below are the top alternatives you can consider:
1. Personal loan
These are unsecured loans from banks or online lenders like CreditCube, Opploans, and so on. These loans are based on your credit score and income, and funds are often received within a day or the next day. So, if borrowing against your policy is not possible, this is a faster and easier loan option if you qualify.
2. Credit union loan
The second alternative on this list is credit union loans. It is a member-owned, non-profit institution that often provides considerable interest rates. You may need to build up savings before qualifying for a loan. They approve borrowers with good, fair, or poor credit.
3. Payment plan with the creditor
This option has to do with you contacting or booking an appointment with your creditors directly. Then, go ahead and negotiate smaller, manageable installments over a longer period. Creditors may freeze interest and stop charging fees while you make these payments.
4. Emergency assistance program
These are community resources, local government schemes, or charitable organizations like nonprofits that offer aid for essentials. They often provide grants, which are funds that do not require repayment, rather than loans. Programs can help with bills like utilities, rent, or food.
5. Employer advance
These are community resources, local government schemes, or charitable organizations like nonprofits that offer aid for essentials. They often provide grants, which are funds that do not require repayment, rather than loans. Programs can help with bills like utilities, rent, or food.
6. Secured loan
Some employers offer payroll advances to employees facing sudden financial difficulties. This allows you to get an advance on your paycheck without the high interest rates of third-party lenders. The repayment is typically deducted from your next paycheck.
7. Bad credit personal loan
These loans are specifically designed for individuals with lower FICO scores (often 580 or below), provided by specialized lenders. These lenders consider other factors beyond just a credit score, such as your income and employment status. While more accessible, these often come with higher interest rates than traditional personal loans.
Life Insurance Loan vs. Personal Loan
Choosing between a policy loan and an unsecured bank loan depends on your credit profile and available collateral. Let’s see how they pitch against each other.
| Feature | Life Insurance Loan | Personal Loan |
| Credit checks | Not required; the insurer skips credit reviews. | Required, but lenders can overlook it if you have a strong income profile. |
| Collateral | Your accumulated policy cash value acts as security. | Usually unsecured, unless you opt for a specialized secured loan. |
| Speed | Depends on the insurance company and processing times. | Although it is fast, funding timelines vary by lender and eligibility. |
| Risk | Causes a reduced death benefit and carries a policy lapse risk. | Fees, strict loan payment terms, and potential damage to your credit score. |
| Best for | Policyholder profiles with a mature whole life or universal life plan. | Individuals who do not want to risk their life insurance or only have term life. |
Step-by-Step: How to Borrow Money From Life Insurance
Below are the steps on how to borrow money from a life insurance policy.
Step 1. Check what type of life insurance policy you have.
Step 2. Confirm whether it has cash value.
Step 3. Ask the insurer for the current loan value.
Step 4. Review the interest rate.
Step 5. Ask how the loan affects the death benefit.
Step 6. Confirm repayment terms.
Step 7. Compare alternatives before accepting the loan.
Step 8. Keep records and monitor the policy balance.
Ready to Explore Your Funding Options?
Start by reviewing your life insurance policy to see if a policy loan is available, and compare it with other funding options, such as personal loans. Ensure to compare loan options from different online lenders before making a decision. By evaluating the costs, terms, and potential impact of each option, you can choose the solution that best meets your financial needs.
Note: Before you take a loan, consult your financial expert to compare the long-term impact on your premiums and taxes before making a final decision.
FAQ Section
Can you borrow money from your life insurance policy?
Yes, but usually only if you have permanent life insurance with enough cash value. Term life insurance usually does not let you borrow money because it does not build cash value.
Can you borrow money from term life insurance?
Usually no. Term life insurance provides coverage for a set period but typically does not build cash value.
Do you have to repay a life insurance loan?
You are usually not required to follow a fixed repayment schedule, but unpaid loan balances can grow with interest and reduce the death benefit.
Does borrowing money from a life insurance hurt your credit?
Usually, a life insurance policy loan does not affect your credit the same way a personal loan can, because the loan is secured by your policy’s cash value.
How much can you borrow from life insurance?
The amount depends on your cash value and insurer rules. Some policies may allow borrowing up to around 90% of the cash value, but the exact limit varies.
Is borrowing money from life insurance taxable?
A policy loan is often not taxable while the policy stays active, but taxes may apply if the policy lapses or is surrendered with an unpaid loan. Readers should consult a tax professional.
