• You can generally borrow against permanent life insurance that has sufficient cash value.
  
• Term life insurance typically does not have cash value, so you cannot borrow against it.
  
• A life insurance policy loan accrues interest even though repayment terms may be more flexible than a traditional loan.
  
• An outstanding loan and interest can reduce the death benefit paid to your beneficiaries.
  
• A large loan balance can potentially cause a policy to lapse and may create tax consequences.
  
• Before borrowing, consider how the loan fits within your broader financial plan and why you need the cash.

When you borrow from life insurance, you are typically taking a loan from the insurance company with your policy’s cash value serving as collateral. You are not simply withdrawing the cash value from the policy.

The amount available depends on your policy, its accumulated cash value, existing loans, and the insurer’s rules. Your policy contract or insurance company can tell you the current loan value and applicable interest rate.

Unlike many traditional loans, a life insurance policy loan generally does not require a credit check because the loan is secured by the policy. Repayment may also be flexible. However, interest continues to accrue on the outstanding balance whether or not you make regular payments.

That makes it important to understand both the immediate source of cash and what the loan could do to the policy over time.

You can generally borrow from life insurance only when the policy has a cash-value component. Cash value is typically associated with permanent forms of life insurance.

Whole Life Insurance
Whole life insurance is designed to provide permanent coverage and can accumulate cash value over time. Once sufficient loan value has developed, the policyowner may be able to borrow against it.

How quickly that value builds and how much you can borrow depend on the specific policy.

Universal Life Insurance
Certain universal life policies can also accumulate cash value that may be available for policy loans. Because universal life policies can have different crediting methods, fees, insurance costs, and policy structures, the effect of a loan can vary considerably from one contract to another.

Term Life Insurance
You generally cannot borrow from term life insurance because term policies are designed primarily to provide a death benefit for a specific period and typically do not accumulate cash value.

If you are reviewing the role insurance plays within your finances, Strategic Investment Management provides insurance analysis as part of its broader financial planning services.

The amount you can borrow depends on the policy’s available loan value, not the amount of the death benefit.

For example, owning a $1 million life insurance policy does not mean you can borrow $1 million. If the policy has accumulated $100,000 in cash value, the amount available for a loan would be based on that value and the insurer’s lending provisions.

Your insurer can provide an updated statement or in-force illustration showing the policy’s current cash value, loan value, interest rate, and projected effects of a loan.

Reviewing those numbers before borrowing can help you understand how much liquidity is actually available and how using it could affect the policy.

Borrowing against life insurance gives you access to cash while keeping the policy in force, assuming the policy continues to meet its requirements. But the loan changes the economics of the policy.

Several effects are important to understand.

Interest Accrues on the Loan
Policy loans charge interest. Rates and the way interest is calculated vary by policy, and unpaid interest may be added to the outstanding loan balance.

A loan that initially appears manageable can therefore become significantly larger if it remains outstanding for many years.

Your Death Benefit May Be Reduced
If you die with an outstanding life insurance policy loan, the insurer generally deducts the unpaid loan balance and accrued interest from the death benefit before paying your beneficiaries.

That matters if the policy was intended to replace income, support a spouse, fund an inheritance, provide estate liquidity for the estate, or meet another specific financial need.

Your Policy Could Lapse
If the outstanding loan and accumulated interest become too large relative to the policy’s value, the policy may eventually lapse.

A lapse can eliminate the insurance coverage and, in certain circumstances, create an unexpected taxable event.

Life insurance policy loans often provide more repayment flexibility than conventional loans, but that does not mean repayment should be ignored.

Policies generally do not require the same fixed monthly payment structure you might see with a mortgage, auto loan, or personal loan. You may be able to repay principal and interest on a more flexible schedule.

If you do not repay the loan, however, interest continues to accrue. The insurer may ultimately deduct the balance from the death benefit, and a growing loan could threaten the policy’s ability to remain in force.

Before deciding not to repay a policy loan, consider whether preserving the full death benefit remains an important part of your financial strategy.

A life insurance policy loan is generally not treated as taxable income when taken from a qualifying policy that remains in force, but important exceptions and complications may apply.

For example, tax consequences may arise if a policy with an outstanding loan is surrendered or lapses and results in a taxable gain. Different tax rules can also apply to a policy classified as a modified endowment contract (MEC).

Because the tax treatment depends on the structure and history of the individual policy, consider consulting a qualified tax professional before taking a substantial policy loan or allowing a policy with an outstanding balance to lapse.

Borrowing is not the only way to access the cash value of permanent life insurance. Depending on the policy, you may also be able to withdraw or surrender the policy.

The choices have different consequences, so it helps to compare them before deciding how to access the money.

The appropriate choice depends on why you need the money, how long you expect to need it, the cost of each option, and whether maintaining the life insurance benefit remains important.

Borrowing from life insurance may be worth evaluating when you have accumulated sufficient cash value, need liquidity, and understand how the loan affects your broader financial strategy.

Possible uses could include an unexpected expense, a temporary cash-flow need, a major purchase, or another planned financial obligation.

The important question is not simply whether cash is available. It is a question of whether using the policy is preferable to the alternatives.

Consider:

• Why do you need the money?
  
• How long do you expect the loan to remain outstanding?
  
• What interest rate will the policy charge?
  
• Do you intend to repay it?
  
• How would a reduced death benefit affect your beneficiaries?
  
• Could the loan threaten the policy if it remains outstanding?
  
• What other sources of cash or credit are available?
  
• Could accessing another asset create greater investment or tax consequences?

Evaluating those tradeoffs within a comprehensive financial plan can help you determine where the money should come from rather than looking at the insurance policy in isolation.

A policy loan can affect retirement planning when permanent life insurance is being used as part of a broader income, legacy, or risk-management strategy.

For someone approaching or living in retirement, liquidity needs may need to be balanced against investment withdrawals, retirement-account distributions, taxes, insurance needs, and the assets intended for heirs.

Some permanent insurance strategies are specifically designed to accumulate cash value for potential use later in life. Strategic Investment Management's guide to life insurance retirement plans explains how these policies differ from traditional retirement accounts and some of the considerations involved.

A policy loan should still be evaluated in the context of the entire retirement strategy rather than assumed to be the most advantageous source of cash.

Before requesting a policy loan, start with the insurance company or financial professional who can provide details about the contract.

Ask:

• What is my current cash value and available loan value?
  
• What interest rate applies to the loan?
  
• Is the rate fixed or variable?
  
• How will interest be credited or charged under my particular policy?
  
• How could the loan affect future cash value?
  
• How much would my death benefit be reduced?
  
• What happens if I do not make loan payments?
  
• At what point could the policy lapse?
  
• Is my policy considered a modified endowment contract?
  
• Can I receive an in-force illustration showing the long-term effect of the loan?
  

Those answers can help you evaluate the actual cost of borrowing instead of focusing only on how much cash is immediately available.

Yes, you can borrow against your life insurance policy if you have an eligible permanent policy with sufficient cash value. The ability to access that money can provide flexibility, but the decision should account for the loan's cost and the purpose the life insurance policy is meant to serve.

Before borrowing, understand:

• how much policy value is available,
  
• the interest rate and repayment terms,
  
• how the loan could affect your cash value and death benefit,
  
• whether the policy could be at risk of lapsing, and
  
• how the choice compares with other potential sources of cash.

Looking at those factors together can help you determine whether a life insurance policy loan supports your broader financial priorities.

The fact that you can borrow against a life insurance policy does not automatically mean you should. Strategic Investment Management can help you evaluate your insurance, liquidity needs, investments, retirement strategy, and other financial resources together before you decide how to access cash.