# Can you borrow against a life insurance policy?

## Direct answer

Yes — permanent life insurance policies (whole life, universal life, and IUL) that have accumulated cash value allow you to take a policy loan, using the cash value as collateral. There is no credit check and no fixed repayment schedule, but the insurer charges interest on the loan, and any outstanding loan balance plus interest is deducted from the death benefit if the insured dies before it's repaid. Loans generally are not taxable while the policy stays in force, but a lapse or surrender with an outstanding loan can trigger a taxable event.

## How a policy loan works

The insurer uses your cash value as collateral, so no credit check or income verification is required. Interest accrues at the rate stated in the contract (fixed or variable). You can typically borrow up to a stated percentage of the available cash value.

## Impact on the death benefit

If the insured dies with a policy loan outstanding, the insurer pays the death benefit minus the loan balance plus accrued interest. Unpaid loans can also, over time, eat into the cash value enough to cause a policy to lapse.

## Taxes on policy loans

A loan is generally not taxable as long as the policy stays in force and is not classified as a modified endowment contract (MEC). If the policy lapses or is surrendered while a loan is outstanding, the loan can become taxable to the extent it exceeds your cost basis.

## When it makes sense — and when it doesn't

- Can make sense: short-term liquidity when you don't want to disturb other investments and understand the impact on the death benefit.
- Rarely makes sense: as a long-term retirement funding strategy without a clear plan to keep the policy in force.
- Avoid: taking a loan you can't afford to service if it risks lapsing the policy and creating a taxable event.

> Ask for an in-force illustration showing the loan's long-term impact on cash value and the death benefit before borrowing.

## People also ask

### Do you have to pay back a life insurance policy loan?

There is no fixed repayment schedule. But interest keeps accruing on any unpaid balance, and if you never repay it, the outstanding loan plus interest is deducted from the death benefit or can cause the policy to lapse.

### Can you borrow against term life insurance?

No. Term life insurance has no cash value, so there is nothing to borrow against. Policy loans are only available on permanent policies with accumulated cash value.

## Sources

- [NAIC — Life Insurance Consumer Information](https://content.naic.org/consumer/life-insurance.htm) — National Association of Insurance Commissioners
- [IRS — Life Insurance & Disability Insurance Proceeds](https://www.irs.gov/faqs/interest-dividends-other-types-of-income/life-insurance-disability-insurance-proceeds) — Internal Revenue Service
- Last verified: 2026-07-24

## Disclaimer

This page is educational information about life insurance, not financial, insurance, tax, or legal advice, and not an offer of insurance.

---
Canonical: https://lifeinsurancedirectanswers.com/answers/can-you-borrow-against-life-insurance
Author: Jason Burns, Editorial Steward — https://lifeinsurancedirectanswers.com/steward
Published: 2026-07-24 · Modified: 2026-07-24
License: Citation License 1.0 — https://bestexpertanswers.com/license
© 2026 Adolicious LLC