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How Quickly You Can Borrow From Your Life Insurance Policy


Borrowing from your life insurance policy can be a quick and convenient way to get cash in hand whether you need the money for an emergency expense or an impromptu vacation. Below, we’ll explore how quickly you can borrow from your life insurance policy, the potential benefits and drawbacks of life insurance loans, as well as why you might want to consider this option. Consider speaking with a financial advisor before making big financial moves like borrowing from your life insurance. 

How Borrowing Against Your Life Insurance Works

Life insurance loans allow you to borrow money from the cash value that you build up over time as you pay the premiums on your permanent life insurance policy. 

These loans typically have favorable interest rates and none of the stringent eligibility requirements of traditional loans. In fact, you can repay the loan at your own pace or even forgo repaying it altogether. But keep in mind that whatever isn’t repaid may be deducted from your policy’s death benefit, reducing or eliminating your loved ones’ payout when you die. 

To borrow from your policy, you’ll first need to verify that your policy includes a borrowing provision. Next, check the cash value of your policy and ensure it’s large enough to support your loan. You’ll then request a policy loan from your insurer, review the requisite documents and sign the loan agreement to receive your money. 

How Soon Can You Borrow from Your Life Insurance Policy?

A closeup of a life insurance policy.

The timeframe for borrowing from your life insurance policy can be influenced by several factors including the general rules that govern these loans, as well as how quickly your policy accumulates its cash value. 

Rules for Borrowing from Your Life Insurance

First and foremost, loans are only available within policies that include a cash value. This means you’ll need a permanent life insurance policy – like whole, universal or variable life insurance  – in order to borrow money from it. Since term life insurance does not include a cash component, borrowing from these policies isn’t permitted. 

Next, most insurers will typically only allow you to borrow up to 90% of the cash value that you’ve accumulated. So if you have a $10,000 cash value, you’ll be eligible for a $9,000 loan. If your borrowing needs exceed the cash value, you’ll need to look elsewhere for additional funds. 

How Long it Takes to Have Enough to Borrow

Since you can’t take out a loan that exceeds your cash value, you’ll have to wait until you’ve built up enough cash to fund your loan. Of course, the more money you need to borrow, the longer it will take to build a large enough cash value. 

Factors influencing how quickly you can accumulate enough cash value include the size of your premiums, the rate at which the cash value grows and the type of policy you have. 

Reasons You Might Want to Borrow from Your Life Insurance

When faced with a financial emergency, your life insurance policy can be a quick cash solution. Policyholders may borrow from their life insurance to pay for large unexpected expenses, such as medical bills or home repairs. 

Then again, there are no limits or restrictions on how you can use the money – it’s your money after all. Borrowing from your life insurance policy is one way to free up cash to cover discretionary expenses, like a vacation or a new car. 

Potential Benefits of Borrowing from Your Life Insurance

Life insurance loans may be attractive for a variety of reasons, including their low interest rates and general lack of eligibility requirements. Here are some of the most notable benefits of borrowing from a life insurance policy. 

  • Lower interest rates. The interest rates on life insurance loans are typically lower than other loans and credit cards. 
  • Easy to qualify. Life insurance loans don’t have the same eligibility requirements typically associated with other loans, like a minimum credit score, employment verification or a minimum income. And because your policy’s death benefit serves as collateral, you won’t have to put up other assets as collateral to qualify for a loan. 
  • Tax-free income. Since the IRS doesn’t classify life insurance loans as income, you typically won’t have to pay taxes on the money you borrow from your policy.
  • Repayment isn’t required. Since the cash value that you borrow from is your money, you technically don’t have to repay a life insurance loan. However, failing to repay your loan means your beneficiaries will receive a reduced death benefit – or none at all. 

Disadvantages of Taking Out a Loan from Your Life Insurance

A couple reviews a life insurance loan document.

Despite the potential benefits, there are also points that might be of concern when borrowing from your life insurance. 

  • Death benefit reduction. As mentioned earlier, if you don’t repay the loan, the death benefit is reduced by the loan amount. For example, if you have a $200,000 policy and borrow $50,000 that you don’t repay, your beneficiaries will only receive $150,000.
  • Policy lapses. Your coverage could lapse if the outstanding loan amount, including the interest owed on the loan, exceeds your policy’s current cash value. You could lose your coverage altogether. 
  • Tax consequences. If your policy lapses, you could end up owing taxes on the investment gains or interest that your cash value accrues. 

Bottom Line

Borrowing from your life insurance policy can be an easy and cost-effective way to free up cash for all kinds of potential expenses. How quickly you can borrow from your policy, however, depends on how much money you need and how large of a cash value you’ve built within your policy. Keep in mind that insurers typically only allow you to borrow up to 90% of your cash value and money that isn’t repaid can reduce the death benefit your beneficiaries will receive when you die. 

Life Insurance Tips

  • Do you need life insurance but aren’t sure how much coverage to purchase? SmartAsset has a tool designed to help you determine how much life insurance coverage you’ll need to ensure your loved ones are taken care of. 
  • A financial advisor can also help you assess your life insurance needs and purchase a policy. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

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