How to Borrow Against Your Life Insurance

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A benefit to purchasing permanent life insurance is that by the time the policy is five years old it begins to build up cash value. Permanent life insurance includes whole life, universal, variable or variable universal insurance. Once a permanent policy has cash value, you can borrow against it by taking out a direct loan or by using the policy as a loan guarantee. Borrowing against your life insurance reduces the death benefit until and unless you repay the loan and any interest charged.

Direct Loan Method

Contact your life insurance company by phone or by logging into your account on the company website. Some companies may allow loan requests by phone and others will require you to fill out an application form.

Provide the required information. Your insurance company will need personal information, policy numbers and the amount you want to borrow. If you do not want income tax withheld from the loan, you must specify this directly. Make sure to sign and date paper applications.

Submit a paper application by fax or mail.

Loan Guarantee Method

Contact your lender for a secured loan application and life insurance company to get an assignment of insurance form. The assignment of insurance will give the lender a legal interest in the cash value of your life insurance policy.

Fill out the loan application and assignment of insurance form. The assignment of insurance form requires personal information, policy information and a signature.

Submit all required paperwork.


  • Check policy documents for a cash value schedule that shows the current cash value of your life insurance policy. This is the most you can borrow or pledge as a loan guarantee. The older the life insurance policy the greater is its cash value.

    Interest rates for direct loans are normally less than what banks charge. Some insurance companies will not require you to make payments on the loan.

    When you use a life insurance policy as a loan guarantee, most lenders use a percentage of cash value as collateral. For example, if the cash value of your policy is $100,000, the lender may allow you to pledge 75 percent, or $75,000 as a loan guarantee.

    You will receive a release of assignment when you pay off a loan secured by your life insurance.


  • If you borrow against your life insurance, you will incur a tax bill. The difference between the amount of the loan and the premiums paid is taxable. For example, if you borrow $50,000 and pay premiums totaling $30,000 you will pay tax on the $20,000 difference. Unless you make a specific request, the insurance company will withhold 10 percent of the loan and pay it to the Internal Revenue Service.