Borrowing Against Life Insurance Cash Value

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  • Post last modified:January 1, 2021

Most people would agree that the older you grow, the more bills you need to pay. The ability to manage your money and your spending habits will make or break your financial capabilities. However, things happen when we least expect it, including financial problems.

While others consider getting a part-time job, some have a bank loan or cash value in mind. They may differ in form and conditions, but they have the same goal; to assist us in making ends meet.

This article will guide you on whether a cash value loan is beneficial and how to access the funds.

How To Borrow Against Cash Value?

borrow from cash valueIf you are paying your policy premium, part of your payment goes to the cash value. As you continue to pay your premium, the cash value also increases.

Depending on your insurance company, they will determine whether you are eligible to borrow against your cash value or not. The only determining factor that they use is the number of premiums paid.

Some lenders require at least 60 months of paid premiums, while others require 120 months, which is equivalent to 10 years of insurance payment.

Borrowing from cash value is easy. It does not require approval and has the lowest interest rates. The cash value can be your saving grace whenever you need immediate cash. Just be mindful of your spending, you can get the most out of it.

The policy owner can either borrow from their life insurance or death benefits. The value of policy coverage you have will determine the amount of money you can borrow. The insurance companies are using it as your loan collateral to ensure commitment in settling the borrowed amount.

Once the amount is determined, the lender will give you options on how to settle your payments. They will not take your properties if you are having difficulties with your payments.

Some lenders will just put your insurance policy on hold until such time you were able to complete your payment. Additionally, there is no need to declare the reason why borrower needs cash.

Some would want to choose the no-pay option because they do not want their benefits to decrease.

Yes, if a person borrowed from his cash value and he was not able to pay them, the amount of the life insurance his beneficiary will get will decrease. However, if he was able to repay them, he will have his full benefits restored.

Things to Consider in Borrowing from Cash Value

things to checkThe lender will indeed let you borrow from cash value without questions or credit checks needed. Instant cash it may seem, there are few things you must consider before you borrow from your insurance policy.

One important thing to do is to balance your options. Ask yourself if it is the best option for you and if it is necessary to use your insurance benefits now or save it for more important matters.

Seek advice from a financial advisor when needed or do some research.

The next thing to do is to request a sample computation from your insurance agent. Discuss with your agent how the cash value will affect your policy.

You can also ask your agent for the monthly payment amount so you can balance your finances.

Another to keep in mind is that the money that you will get from your cash loan will not have any protection from the creditors. So, if you have invested the money in the wrong business, the insurance company will not cover it for you.

Loan policy may still be active, if and only if, the loan value will not be higher than the borrower’s death benefit. It is a kind of decision to make. You must understand how you will put yourself in a win-win situation.

If you choose the now, then better yet be prepared for the unexpected circumstances where the insurance benefits will be in need. For sure, you do not want to jeopardize your family’s financial security in the future.

Advantages of Borrowing from Cash Value

The process of borrowing money from the cash value is a whole lot easier since it is different as compared to banks or credit card loans. The money is readily available and will not require the usual investigation and credit check to have the loan processed.

Cash value borrowers may set up their payment due dates with lenders. It is an advantage for them and could promote effective money management. They can also request to have it scheduled right after their payday or once they get their social security benefits.

The cash value is free from any tax. However, if you missed your payments and your policy lapsed, an income tax will be charged.

Another best thing about borrowing from cash value is that they will not repossess any of your valuables. They value ease of doing business with their policy owners since they give them time to settle their payments on their terms.


Every good offer appears to have a catch. One thing that can happen if the borrower failed to pay, his policy will decrease, or worse, he will lose his coverage. Most of us prepare for our retirement, and we do not want any impulsive decision to ruin our future’s financial freedom.

One more thing, if the loan amount balance reached higher than the policy coverage value, the lender will ask the borrower to settle the remainder. Another disadvantage of borrowing against the cash value is the interest amount.

Although interest is lower than what other lending companies offer like salary loans, it is still an interest to pay.

Lastly, a policy owner can only borrow one a time. Meaning, even though the borrower has multiple policies, he must pay off his loan first before he could borrow again. The cash value will not be an option for emergency cases to those who have outstanding balances.

Borrowing Against Cash Value vs. Banks

bank gives loanAt some points in our lives, we encounter difficulties that concern money. We often find ways to resolve our financial issues by borrowing money, be it from the bank or against the cash value.

Provided that there are different types of loans, we all need to agree to their terms and conditions.

Most people apply for bank loans or cash advance when they need an emergency fund. They are used to the process of submitting their forms and wait for approval.

The interest rate is not fixed and will vary based on the terms, amount, and credit score of the borrower.

Most people do not feel like borrowing money from the banks because they fear that the bank will report them immediately if they fail to send their payments. Nobody wants to have a bad credit score, yet unexpected things happen.

Additionally, banks charge fees like late fees to missed payments. Fees are an added financial burden to borrowers, which they try to avoid.

On the other hand, insurance companies do direct-deposit with a zero percent tax. Some lenders also agree to issue checks or any option that is convenient to the borrower. Fast process with no approval needed.

The most common reason why people apply for loans is that they need a large amount of money instantly. They may be in an emergency, and waiting for papers to be approved may seem forever for them.

Long loan process and approvals are the reasons why most people opt for insurance loans rather than what their banks offer.

Aside from that, the lender will offer you flexible payment terms for your cash value loan without questioning your capabilities to pay or undergoing credit investigations. The borrower can enjoy low-interest rates like what most banks offer.

Moreover, their credit score will not be affected, whether they pay their loans on time or not.


Applying for a loan requires in-depth decision making. Some processes may take too long, while some can lend immediately.

Getting a sample quote from different lenders can also be of help in weighing your options.

Otherwise, seek financial advice to help you better understand the processes, as well as the benefits and disadvantages.

Linda Chavez

I'm a burial & senior life insurance expert, independent agent, Founder & CEO of Seniors Life Insurance Finder. I have been working in this sector since 2004 and established my own company in 2014. I have a team of seven members, and we are trying hard to share the knowledge we've gathered. We know how difficult often it is to find an affordable policy. Hence, we are doing our best to help you.