Can You Borrow Against Your Life Insurance?

Life insurance is more than a safety net for your loved ones. It’s a financial tool you can use during your lifetime for both essential and discretionary purchases. With a properly structured participating whole life insurance policy, you can build a cash value, which you can borrow against for any purpose (from repaying a debt to purchasing a boat or lake house). This process is not an investment but a financial strategy that works alongside investing. It’s similar to borrowing against the equity in your home, but with added benefits—your cash value continues to grow uninterrupted.

Like home equity loans, everything you return to the policy as a loan repayment becomes accessible to use again in the future. However, with a loan against the cash value of your insurance, your cash value assets continue to rise with daily cash accumulation and dividends. These contracts are built on a foundation of contractual guarantees provided by the life insurance company and can create a scenario of total control for the policy owner.

Utilizing the cash value of your life insurance policy is a fundamental aspect of the Infinite Banking Concept. Borrowing against the cash value of your life insurance policy, rather than withdrawing it, can help you fund purchases during your lifetime and leave a death benefit for your loved ones.

Our clients often come to Ascendant Financial asking, “Can I take a loan from my life insurance?” Our answer is “Yes, with a properly structured participating whole life insurance policy.”

Let’s explore how you can unlock the full potential of your life insurance policy to fund your goals and secure your legacy.

Can You Borrow Against Your Life Insurance?

Yes. You can borrow against your life insurance if you have the right type of policy. Term life policies don’t allow loans, but a participating whole life policy can build a cash value that you can borrow against through the Infinite Banking Concept.

This cash value is built through a combination of your premium payments, guaranteed interest, and dividends. Once the cost of your policy is paid, you can enjoy uninterrupted compounding growth of your cash value and the death benefit of your beneficiaries.

It takes time to grow your policy to an amount that you can borrow against, but once you do, you can access policy loans tax-free at any time, without additional credit checks or approvals needed. This provides long-term wealth flexibility for those who can consistently fund their policies over time.

A common misconception is that you are borrowing the actual cash value. Rather, you’re borrowing against this cash value, using it as collateral. That’s why its value continues to grow even if you take out a loan.

Benefits of Borrowing money from life insurance

The ability to borrow against a life insurance asset, known as cash value, has been widely understood for many years. However, there are many details about the advantages of borrowing from insurance that are unknown to the general public. When used intentionally, borrowing from a participating whole life insurance policy can become a powerful tool in your financial life.

You can access capital inside an insurance contract that has cash value, using it as collateral to receive a policy loan from the life insurance company’s general fund. This collateral is very powerful because it allows you to have your capital continually growing inside the whole life insurance contract. You never actually withdraw the cash value because you’re only pledging it as collateral. Then you receive a policy loan from the life insurance company’s general fund. The capital from the policy loan appears in your bank account, which you can use for anything you need. And you can replenish the capital that you borrowed at any time.

Borrowing money from Life Insurance Nelson Nash’s process

Tax Benefits of Using Life Insurance as a Financial Tool

Taking a loan against your policy can offer helpful tax benefits compared to other types of loans. When you borrow against the cash value of your properly structured policy, the proceeds are not typically subject to income tax because you’re borrowing against (not from) your cash value, which serves as loan collateral. Your cash value continues to grow, uninterrupted, even when you’re using the loaned funds.

Let’s compare this to a traditional loan, like a personal loan or mortgage. While the loan “income” isn’t taxable, the interest you pay for that loan goes directly to the lender. The interest you pay on your life insurance policy loan goes back into the insurance company, which you co-own as a policyholder. These funds are redistributed from all members and paid out in annual dividends, so you receive a portion of your interest payments back.

When you borrow money from other investment accounts (e.g., 401(k)s, RRSPs, or IRAs) before they mature or before you retire, you’re often hit with penalties and fees. In some cases, you can borrow against their value. Still, you may be limited by borrowing amounts or strict repayment terms, and you lose their availability to continue growing in your accounts. With a life insurance policy loan, there are no penalties, no repayment schedule, and your cash value continues to compound daily, tax-advantaged.

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How Soon Can I Borrow From My Life Insurance Policy?

Before you can borrow against your whole life insurance policy, you need to pay for your policy and build up the cash value, which takes time. This time can be sped up through the power of paid-up additions (PUAs) and increased premium payments.

Some policies can be structured to provide borrowing power within 30-90 days, but the typical policy takes several years to build up your cash value (depending on how much you need).

How long it will take before you can borrow depends on multiple factors:

Policy Size: Larger policies typically generate higher cash values and dividends sooner, as they represent a greater share of the insurer’s divisible surplus.
Funding Strategy: Front-loading premiums or using Paid-Up Additions (PUAs) can accelerate cash value growth, while a more gradual funding approach may delay access to significant cash value.
Provider Specifics: Each insurer has unique dividend histories, policy loan terms, and cash value growth rates, all of which impact how quickly you can leverage the policy for Infinite Banking.

Here’s an example from a real Ascendant Financial client: Their family started their Infinite Banking journey with a $24,000 annual premium. With the help of their financial advisor, they structured their policy to provide access to a $11,906 cash value after the first 30 days. They used this value to pay off their credit card balance, then used their policy cash value to pay additional debts over the next two years.

So, how soon can you borrow against a life insurance policy? Talk to your Infinite Banking Advisor today about which life insurance plans, premiums, and options can best meet your financial goals.

Interested in borrowing from your life insurance policy? See if you’re a good fit for Infinite Banking.

What Can I Use These Loans for?

There are no limitations for how you can use policy loans:

Investments: Using these loans for investments, such as real estate, can be powerful because they allow you to leverage your cash value while it continues to grow uninterrupted.
Emergencies: Using these loans for emergencies provides quick, stress-free access to capital without credit checks or repayment pressure, making them a reliable safety net.
Debt Recapture: Many will reinvest into their business by purchasing inventory, or perhaps use it to fund wages or pay for annual taxes within the business.

The biggest mistake people make with policy loans is treating them casually, as if repayment isn’t important. While there’s no fixed repayment schedule, failing to repay can reduce your death benefit and limit future borrowing capacity. Another common misstep is not aligning repayments with the cash flow freed up from the loan’s purpose, like redirecting payments from a paid-off debt back into the policy.

Regardless of how you use the loan, the key is to have a clear plan for repayment to maintain the policy’s long-term benefits. Treat the loan like any other financial obligation and prioritize replenishing your system to keep your financial engine running smoothly.

How Much Can I Borrow From My Life Insurance Policy?

The amount you can borrow against your life insurance policy is limited to the amount of your cash value. This is different from your death benefit value (the amount your beneficiaries receive after your passing). With an active policy and paid-up premium payments, you can borrow as much or as little of the cash value as you want, typically no more than 90-95% of the available cash value.

To increase the available cash value, you have four options:

Increase your premium contributions (where policy terms allow)
Pay premiums annually, rather than monthly, to build early cash value
Keep up regular payment schedules to keep growth on track
Overfund your policy through PUAs to accelerate early growth.

So, how much can you borrow against your life insurance policy? Here are 2 example scenarios:

Small Policy Example

Policy Cash Value: $12,000
Cash Needs: $10,000 for property taxes and charitable giving
Borrowing Plan: Borrow 90% of the cash value ($10,800) as a policy loan
Explanation: Even while borrowing the full $12,000 from the cash value, the entire policy continues compounding daily, uninterrupted. Even paying 6.5% interest on this loan, you’re recapturing the interest and keeping control of your money.

Large Policy Example

Policy Cash Value: $100,000
Cash Needs: $50,000 to invest in a business
Explanation: If you borrow $50,000, the $50,000 is still growing within the policy. The larger policy amplifies the compounding effect, and as you repay the loan, you regain access to the capital for future opportunities. This creates a financial tailwind, especially when paired with disciplined repayment.

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How Does Borrowing Money from Life Insurance Work

When you return money by making payments back to the life insurance company, it pays off any existing policy loan. Then, you can access that money through a loan later. It’s like if you used your savings account at the bank to make a purchase, then rebuilt that account balance over time.

Unlike pulling from a bank savings account, when you borrow against your life insurance, your cash value continues to grow as though you never touched it. This allows you to solve one of the common problems that many people experience, called opportunity cost—lost growth when you spend your own savings. Borrowing from your life insurance cash value is one of the “living benefits” of a permanent life insurance with cash value.

This borrowing power is part of permanent coverage called participating whole life insurance. You can borrow against the available cash value through an unstructured loan. Unstructured loans are important because the borrower (the policy owner) has total control over the repayment terms of the loan. As the policy owner, you dictate when and how you make repayments.

There’s no requirement from the insurance company for you to make a specific type of payment at any point. You could make a one-time payment at the end of the year, pay monthly, semi-annually, or even delay repayment for a few years. While interest will accrue, it is paid back into the general pool of funds that benefits all participating policyholders, including you.

Repaying the Insurance Policy If the Policyholder Dies

In the event the policyholder dies before the loaned is repaid, the outstanding loan balance and interest are deducted from the death benefit. The remaining death benefit is then paid tax-free to your beneficiaries.

These policy loans and the interest payments are part of the company’s investment strategy and help maintain the stability of long-term dividends for all policyholders.

Using Your Life Insurance Cash Value to Live Your Best Life

Using the cash value of your policy while you’re living is a strategic way to achieve financial flexibility while maintaining peace of mind through Infinite Banking. Your life insurance policy continues to grow, regardless of whether you borrow against it, providing a long-term legacy for your beneficiaries while giving you control over your money.

Imagine being able to strategically finance major purchases during your life while keeping your money working for you. With the policy’s death benefit, it could solve financial and emotional problems for your loved ones when you pass away.

This method of using your cash value savings as a self-financing option provides more control, and for many, enhanced long-term growth potential on your existing capital.

Frequently Asked Questions

Is It a Good Idea to Borrow Against Life Insurance?

Borrowing from your life insurance policy is a core part of the Infinite Banking Concept. You can use the cash value of your life insurance policy to fund purchases during your lifetime while your policy continues to compound and grow, leaving a death benefit for your loved ones.

Does Borrowing From My Policy Affect the Death Benefit?

Only temporarily. Any unpaid loan balance reduces the death benefit. As long as you repay the policy loan, the value of your death benefit continues to experience uninterrupted growth.

Can I Borrow From Any Type of Life Insurance Policy?

No. You must have a participating whole life insurance policy to take advantage of this borrowing power. Your Infinite Banking Advisor can recommend the best policy and policy structure tailored to your needs.

Become Your Own Banker with Infinite Banking

Borrowing from your life insurance cash value is an efficient way to become your own banker and fund the debt repayments and important life purchases you need, while you’re alive. When we utilize the policy cash value asset for this purpose, we create an environment where you never have to give up the compounding growth of your money.

Talk to your Ascendant Financial Infinite Banking Advisor today about how to structure your whole life policy to take advantage of cash value loans from your life insurance policy to meet your needs today and for the future.

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