Imagine borrowing money without selling assets, visiting the bank, or navigating complicated approval processes. With a properly structured life insurance plan, you can borrow cash anytime, using your policy as collateral.
This financial strategy can help you pay for unexpected life expenses or nice-to-have items, such as a new car or vacation home, with more favorable rates and terms compared to traditional loans. However, before adopting this strategy, it’s essential to thoroughly understand the risks and benefits associated with this type of loan.
In this article, we’ll explore how borrowing against your life insurance works and the benefits, potential risks, and considerations to understand before getting started.
What Does Borrowing Against Life Insurance Mean?
With a participating, permanent life insurance policy, you can build a cash value to use as collateral for loans during your lifetime. A policy loan can be taken out for any reason and affords you more favorable repayment terms than seeking other loans.
These loans are only possible with whole life insurance plans. Term life plans don’t accumulate cash value that can be borrowed against.
How Life Insurance Loans Work
When you pay your annual premiums, a portion covers your policy costs (such as admin and the death benefit), while the remainder goes toward your cash value. This cash value compounds daily and can be used as collateral for loans, growing daily through compounding.
When you take out a loan, you’re borrowing against this cash value, not withdrawing it. That means your cash value stays in the policy and continues to grow uninterrupted, even while you have an active loan.
There are three common ways to “get money” from your policy:
Cash Value Loan
This is the most popular option: using your policy cash value as collateral for a favorable loan. These whole life insurance loans offer lower interest rates and flexible payment terms. As a bonus, you are not required to have a fixed repayment schedule and can pay in regular installments or in several lump sums over time. Your outstanding loan balance will accrue interest, so it’s essential to manage the loan responsibly to avoid eroding the death benefit over time.
Cash Withdrawal
You can choose to withdraw funds from your cash value permanently. While this is favorable if you are unable to pay it back, it permanently slows down the compounding growth of your policy and reduces your death benefit. Additionally, it may trigger an income tax event if this value and owed interest exceed your available cash value.
Policy Surrender
The final, and usually least favorable, option is to surrender (cancel) your policy. This immediately cancels your death benefit, future policy growth, and any other plan coverages. Upon canceling your plan, you will receive the full cash value of your policy (minus any outstanding loans, interest, and surrender charges).
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Schedule a consultation with Ascendant Financial and ensure your financial choices align with your long-term goals — before it’s too late.
Benefits of Borrowing Against Life Insurance
Borrowing from your whole life insurance cash value is a core financial strategy in Infinite Banking due to its many advantages:
- It doesn’t require a credit check or a lengthy application and approval process
- It provides flexible repayment terms
- It provides the opportunity for tax-free access to your cash value (that must be managed responsibly)
- It doesn’t impact other investments you may have
Discover how policy loans work within Infinite Banking by watching this free recorded webinar.
Potential Risks and Considerations
Being aware of the potential risks of policy loans can help you determine if it’s the right financial solution for your liquidity needs. Risks common to insurance policy loans include:
- Accumulated interest
- Reduced death benefit (if not repaid during your lifetime)
- Risk of policy lapse if your loan is mismanaged
- Not understanding the potential tax implications of policy loans
The team at Ascendant Financial is dedicated to helping clients set up participating whole life insurance policies to take advantage of policy loans. We also believe in empowering you to enhance your financial knowledge, enabling you to understand how to manage your finances and policies to avoid these risks.
Misconceptions about Infinite Banking Policy Loans
In our work with clients, we’ve heard many common misunderstandings and misconceptions about how these loans work. Here are the top misconceptions we hear:
- “I’m withdrawing my money.”
Many clients believe they’re withdrawing their own money from the policy. In reality, they’re borrowing against the cash value, which remains intact and continues to grow. The loan is secured by the policy’s death benefit, not the cash value itself.
- “It’s free money.”
Some believe policy loans are interest-free. While you’re borrowing from the insurance company, you’re still charged interest on the loan. However, the beauty is that you control the repayment terms, and the policy continues to grow uninterrupted.
- “I can ignore repayments.”
While repayment is flexible, neglecting it entirely can lead to compounding loan interest, which reduces the death benefit and potentially causes the policy to lapse if the loan balance exceeds the cash value.
- “It’s risky or complicated.”
Borrowing against life insurance is often perceived as a risky endeavor, but when done responsibly, it can be a powerful tool for financial control. The key is coaching clients to treat policy loans like any other financial obligation, thereby avoiding pitfalls.
- “It’s there…so I’m going to borrow the full amount”
This leads to overborrowing, as clients borrow too much of their available cash value, leaving little room for emergencies or future opportunities. It’s crucial to maintain a buffer for flexibility.
An Ascendant Advisor can help you avoid these pitfalls and misconceptions through education and strategic advisory services. Start by learning more about Whole Life Policy loans and how they can be used within the Infinite Banking Concept.
5 Steps to Borrow Against Life Insurance
Taking out a loan against your life insurance policy is way less complicated than other traditional loans. Get your Infinite Banking policy loan in just five simple steps:
- Confirm your policy has enough cash value.
- Contact your insurance company.
- Request loan terms, interest rate, and repayment schedule.
- Sign paperwork and receive funds.
- Monitor policy performance regularly.
Borrowing Against Life Insurance vs. Traditional Loans
Not all loans are equal. Depending on your loan source or lender, you will receive wildly differing payment terms, credit requirements, and other terms and conditions.
Here’s an at-a-glance comparison of what to expect with different loan types
| Life Insurance Collateral Loan | Personal Bank Loan | HELOC Loan | Credit Cards | |
| Best for… | Temporary liquidity | Debt consolidation or major purchases | Home renovations or large expenses | Short-term cash needs |
| Security? | Secured by policy death benefit and cash value | Unsecured | Secured by your home | Unsecured |
| Typical Interest rates | 4-8% | 6-36% | 3-8% (influenced by market rates) | 15-25% |
| Collateral | Your policy cash value | None | Your home | None |
| Access to Funds | Borrow up to the available cash value | Lump Sum | Revolving Line of Credit | Revolving Credit |
| Approval Requirements | Requires a permanent life insurance policy with cash value | Based on income and credit score | Requires home ownership | Based on the credit limit |
| Missed Payment Penalty | If the loan + interest exceeds the cash value, your policy may lapse if not repaid. | Collections or legal action | Long-term risk of home foreclosure | Interest owed + potential for increased interest rates in the future |
| Use of funds | For any purpose | |||
To summarize it simply: Borrowing within the Infinite Banking Concept™ through a life insurance policy loan is fundamentally different from traditional loans because it prioritizes control, uninterrupted growth, and flexibility.
Borrowing as Part of the Infinite Banking Concept™
The Infinite Banking Concept is built on the ability to borrow cash, using your policy value as collateral. It’s like accessing your own personal bank (hence the name “becoming your own banker”). Your policy loan can be used for reinvestment, business opportunities, unexpected large expenses, or as part of your family’s generational wealth strategies.
It’s not a quick cash grab; it should be used responsibly to achieve the greatest benefits and maximize safe borrowing capacity. To do this, your policy should be designed with a focus on high early cash value and long-term growth. This typically involves a Paid-Up Additions (PUA) rider, which accelerates cash value accumulation, allowing clients to access more capital sooner.
Ready to take control of your money? Learn how Infinite Banking can work for you.
Ready to take control of your financial future?
Speak with an Ascendant Financial Advisor today and start building a strategy that protects your legacy.
Expert Guidance For Policy Loans
Effective financial management is crucial for maximizing the benefits of policy loans. Having a financial advisor by your side to provide professional coaching, loan design, and management can set you up for success.
Work with your financial advisor to discuss your life and financial goals, ensuring your policy meets your needs. Here are some examples of ways clients have used their policies:
- Debt Consolidation. We helped a family use their policy loan to pay off high-interest credit card debt and a line of credit. They used their policy to eliminate their debt and build their cash value for future use.
- Business Expansion. We’ve helped many businesses use policy loans to purchase equipment or expand their business. They stay in control and access capital without relying on traditional lenders.
- Real Estate Investments. Many clients use policy loans towards real estate investments and property. The rental income from these properties helps repay the loan, creating a self-sustaining cycle of wealth building.
A financial advisor familiar with Infinite Banking can help you structure your policy to achieve goals like these. Through education and strategic coaching and guidance, let the advisors at Ascendant Financial help you become your own banker and use the Infinite Banking Concept to your advantage.
Start building financial freedom with a strategy designed for your family’s future, today.
FAQs About Borrowing Against Life Insurance
Is borrowing against life insurance a good idea?
With responsible financial management, you can use your life insurance as collateral for a favorable, flexible loan to pay for emergency expenses, investments, or anything you wish. You only need a properly structured, dividend-paying whole life insurance policy to get started. This strategy works best when the policy is designed with a high early cash value and when the loan is repaid responsibly to avoid reducing the death benefit or creating financial strain.
How do I borrow against my life insurance?
You can borrow up to the accumulated cash value of your life insurance policy. Contact your insurance company to discuss the terms of your loan and arrange for the release of your funds, which is typically within a few business days. This is an unstructured loan with an interest rate set by your insurer, and with no fixed repayment schedule.
How long do you have to have life insurance before you can borrow from it?
In some cases, it takes several years to accumulate enough cash value in your life insurance policy so you can use it as collateral for a loan. However, an Infinite Banking Financial advisor can help you structure your plan with a focus on high early cash value and long-term growth, allowing you to access your cash value as early as 30 days.
Book a Call with an Advisor at Ascendant Financial
Contact Ascendant Financial today to review all of your financial options.
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