How Borrowing Against Life Insurance Works
Life insurance policies represent real financial value — not just after death, but while you're alive. Depending on your policy type and situation, you can access this value through several mechanisms:
- Traditional policy loan: Borrow directly from the insurance company using your cash value as collateral. Available only for permanent life policies (whole, universal, variable universal).
- Living Benefit Loan: Borrow against the death benefit itself — works with any policy type including term life. No cash value required. The loan is repaid from the death benefit.
- Accelerated Death Benefit: A rider on some policies that lets you access 25–50% of the death benefit if diagnosed with a terminal illness.
- Cash surrender: Cancel the policy entirely and receive the cash surrender value. You lose all coverage permanently.
Each method has different requirements, timelines, and trade-offs. The right choice depends on your policy type, how much you need, how fast you need it, and whether you want to keep coverage in place for your beneficiaries.
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Traditional Policy Loans
If you have a permanent life insurance policy with accumulated cash value, you can borrow against it directly from your insurance company.
Key facts about policy loans:
- ✓ Borrow up to 90–95% of your cash value
- ✓ No credit check or income verification
- ✓ Interest rates typically 5–8% (fixed or variable)
- ✓ No mandatory repayment schedule
- ✗ Only works for permanent policies with cash value
- ✗ Unpaid loan balance reduces death benefit
- ✗ If loan exceeds cash value, policy may lapse (creating a tax event)
- ✗ Processing typically takes 5–10 business days
Policy loans work best when you have significant cash value built up and need a relatively modest amount. They are the simplest and cheapest way to borrow — if your policy qualifies.
The catch: Term life insurance, group life insurance, and newer permanent policies with little cash value don't qualify for traditional policy loans. That's where Living Benefit Loans fill the gap.
Living Benefit Loans: Borrow Without Cash Value
A Living Benefit Loan lets you borrow against your policy's death benefit — not the cash value. This means it works with virtually any type of life insurance, including term life policies with zero cash value.
How Living Benefit Loans work:
- You apply — provide your policy details and a brief health questionnaire. No credit check.
- We evaluate — we assess the policy's death benefit and your eligibility. Minimum $75,000 death benefit required.
- You receive funds — up to 50% of the death benefit, deposited in as few as 3 business days.
- No monthly payments — the loan (plus interest) is repaid from the death benefit when the policy pays out.
- Beneficiaries keep the rest — your beneficiaries receive the remaining death benefit after the loan is settled.
This is fundamentally different from selling your policy (viatical/life settlement). You keep ownership. You keep your beneficiaries. You keep your coverage. You're simply accessing value early.
Living Benefit Loans carry an APR of up to 35.99% and an origination fee of 3% of the death benefit. Compare all your options →
Which Policy Types Qualify?
| Policy Type | Policy Loan | Living Benefit Loan | ADB Rider | Surrender |
|---|---|---|---|---|
| Term Life | ✗ | ✓ | If rider exists | ✗ (no value) |
| Whole Life | ✓ | ✓ | If rider exists | ✓ |
| Universal Life | ✓ | ✓ | If rider exists | ✓ |
| Variable Universal | ✓ | ✓ | If rider exists | ✓ |
| Group Life (Employer) | ✗ | ✓ | Rarely | ✗ |
| FEGLI (Federal) | ✗ | ✓ | ✓ (built-in) | Partial |
The key difference: traditional policy loans require cash value (which only permanent policies build over time). Living Benefit Loans work against the death benefit itself, which every policy has from day one.
Side-by-Side Comparison
| Feature | Policy Loan | Living Benefit Loan | ADB Rider |
|---|---|---|---|
| Amount available | 90–95% of cash value | Up to 50% of death benefit | 25–50% of death benefit |
| Credit check | No | No | No |
| Funding speed | 5–10 days | As few as 3 days | 14–30 days |
| Monthly payments | Optional | None | N/A (not a loan) |
| Keep policy? | Yes | Yes | Yes |
| Beneficiaries receive? | Reduced by loan | Reduced by loan | Reduced by amount |
| Requires terminal diagnosis? | No | No* | Usually yes |
| Works with term life? | No | Yes | If rider exists |
*Living Benefit Loans from Life Credit are designed for individuals with serious or terminal health conditions. Minimum $75,000 death benefit required.
Pros and Cons
Advantages of Borrowing
- ✓ Access cash without selling your policy
- ✓ No credit check or income requirements
- ✓ Beneficiaries still receive remaining benefit
- ✓ Funds can be used for anything — medical bills, mortgage, daily expenses
- ✓ Faster than selling your policy (viatical/life settlement)
- ✓ No tax on loan proceeds in most cases
Things to Consider
- ✗ Reduces the death benefit your family receives
- ✗ Interest accrues (varies by loan type)
- ✗ Policy loan: risk of lapse if loan exceeds cash value
- ✗ Living Benefit Loan: APR up to 35.99%
- ✗ May affect Medicaid eligibility
- ✗ Not all policy sizes qualify (minimum $75K for Living Benefit Loan)
How Repayment Works
Policy Loans
You can repay on your own schedule — or not at all. If you don't repay, the loan balance (plus interest) is deducted from the death benefit when the policy pays out. Warning: If the loan balance grows to exceed the policy's cash value, the insurer may cancel the policy, and any gain above your cost basis becomes taxable income.
Living Benefit Loans
No monthly payments required. The loan is repaid from the death benefit when it pays out. Your beneficiaries receive the remaining death benefit after the loan is settled. You maintain full policy ownership throughout.
Frequently Asked Questions
Can you borrow against your life insurance policy?
Yes. If your policy has cash value, you can take a policy loan directly from the insurer. If your policy lacks cash value (like term life), you can use a Living Benefit Loan to borrow up to 50% of the death benefit without selling the policy.
How much can I borrow against my life insurance?
With a traditional policy loan, typically 90–95% of cash value. With a Living Benefit Loan from Life Credit, up to 50% of the death benefit on policies with at least $75,000 face value.
Do I need a credit check to borrow against life insurance?
No. Neither traditional policy loans nor Living Benefit Loans require credit checks. The policy itself serves as collateral.
How fast can I get money from my life insurance?
Policy loans from your insurer typically take 5–10 business days. Living Benefit Loans from Life Credit can fund in as few as 3 business days.
Can I borrow against term life insurance?
Not through a traditional policy loan (term life has no cash value). However, a Living Benefit Loan works with term life, whole life, universal life, and group policies as long as the death benefit is at least $75,000.
What happens to my beneficiaries if I borrow?
Your beneficiaries receive the death benefit minus the outstanding loan balance. With a Living Benefit Loan, you borrow up to 50% — meaning at least 50% of the death benefit goes to your family.
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