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Guides / Explainer

Borrowing from your cash value

How policy loans work, what they cost, and where they go wrong.

Summers Ahead Editorial
3 min read
The short version
  • You can borrow against cash value, no credit check.
  • Unpaid loans and interest shrink the death benefit.
  • Too much borrowing can lapse the policy.

Once your policy has built cash value, you can borrow against it. The insurer lends you money and uses your cash value as collateral.

Why people like it

No credit check, no bank approval, and no fixed repayment schedule. People use it for a down payment, a slow season, or extra income later.

What it costs

Loans charge interest. Anything you have not repaid, plus interest, is subtracted from the death benefit and your cash value.²

The big risk

If loans and interest grow larger than your cash value, the policy can lapse. That ends your coverage and can create a tax bill on gains.

Taxes

Policy loans are generally not taxed as income while the policy stays in force and is not a modified endowment contract. Your situation matters, so check with a tax professional.

Go deeper with the free guideTerm vs IUL, side by side, A planning worksheet and 8 questions to ask any agent.
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¹ Index-linked interest is never credited below 0%; policy charges still apply and can reduce cash value. Caps and participation rates limit upside. ² Policy loans accrue interest and reduce the death benefit and cash value if unpaid. Tax treatment depends on your situation.