Life Insurance Cash Value Borrow
Whole life borrow: tax-free up to basis, ~5-8% rate, no credit check. Doesn't have to be repaid. Reduces death benefit. NOT for term life.
| Cash value | — |
| Amount borrowing | — |
| Policy loan rate | — |
| Max borrowable (90%) | — |
| Total policy interest | — |
| Bank loan interest comp | — |
| Current death benefit | — |
| Death benefit after loan | — |
| Savings vs bank loan | — |
Whole life and universal life insurance policies build cash value over time. You can borrow against this cash value tax-free, no credit check, no qualification — at policy rates (typically 5-8%). The loan reduces death benefit but doesn't have to be repaid (except interest).
How Policy Loans Work
Borrow up to 90% of cash value. No credit check, no income verification. Tax-free up to basis (premiums paid). Interest charged at policy rate (5-8% typical). No repayment schedule — pay interest only, or let interest accrue. Death benefit reduces by unpaid loan + interest at death.
Tax Implications
Tax-free up to basis (cumulative premiums paid). Gain (cash value - basis) becomes taxable only if you withdraw it or surrender policy. Modified Endowment Contract (MEC) status: loans become taxable (last-in-first-out). Most older policies are not MECs.
Strategic Uses
(1) Emergency fund without taxable event. (2) Business capital without bank approval. (3) Estate planning leverage. (4) Pay off high-interest debt (use 6% policy loan to pay 22% credit card). (5) Tax-arbitrage: deductible interest if borrowed for investment purposes.
Last updated May 2026. Sources: NAIC Life Insurance Guide.