Home  >  Financial Articles and Q&A  >  I would like to borrow some money from my life insurance...

I would like to borrow some money from my life insurance policy how do I go about doing this?

Aug 05, 2013 by paul from Clarion, IA in  |  Flag
3 Answers  |  4 Followers
Follow Question
2 votes


If you have the ability to take a loan from your life insurance policy, you should contact your agent that sold you the policy or contact the Life Insurance company directly to help you process your request. Before doing this though, you should speak with a qualified financial advisor to understand the pros and cons of taking a loan from a life insurance policy.

Comment   |  Flag   |  Aug 05, 2013 from Uniontown, OH

1|600 characters needed characters left
2 votes

Hi Paul, Taking a loan from your policy is usually simply processing the paperwork. If you don't have any contact with the agent, just call the policyholders service department at the company. Ask them how much is available for loan and what the interest rate would be on the loan. One of the benefits of a loan versus a withdrawal is that your cash account value doesn't change and continues to earn interest. Companies deal with this in several different ways so you can just ask them what interest rate the dollars in your cash value that you are using as collateral will be earning. So, as you see, you should be paying an interest rate on the loan and at the same time earning an interest rate on your cash. Sometimes these offset each other. All of us encourage you to speak with a planner to make sure you know the pros and cons. Make sure you use one that is pro permanent life insurance and really understands how to maximize the use of the policies. Once you are satisfied and know what you want, tell the company how much you want. They will send you the paperwork to sign and then send you a check in the mail. As you probably know, this money is not taxable since it's a loan. We do usually encourage clients and design a plan to pay back the loan over time because it restores your collateral base and then you can do it again in the future. Best of luck to you. Thank you for using BrightScope.

Comment   |  Flag   |  Aug 05, 2013 from Franklin, TN

1|600 characters needed characters left
0 votes

Paul, call the company directly. Different policies, even within the same company, handle loans differently.

Though they may or may not charge interest, there could be a crediting rate that would make it a ‘net 0 interest loan’, or close to 0.

More importantly your loan proceeds are typically ‘tax free’. But if your policy lapses, any gain becomes taxable, so keep that in mind. The reasoning for that is that the tax advantage you get is based on the premise that it is life insurance. So, if you have, for example, made payments to create a $30,000 cash balance, and that balance was intended to pay future mortality expenses. Then you take a $15,000 loan to pay unforeseen expenses, or buy a sailboat, or whatever. If you don’t repay the loan, and there is a gain in your account, Uncle Sam will not look at that sailboat purchase as the intended purpose; hence no tax break on the gain.

Just be aware of the possible implications. I’d recommend you consult with a local financial professional in your area, preferably a CFP®

Comment   |  Flag   |  Aug 14, 2013 from Delray Beach, FL

1|600 characters needed characters left