Can you Borrow Against Term Life Insurance?


Yes, you can Borrow Against Term Life Insurance. Common life insurance policies can be used to borrow money when they are “surrendered.”

A large majority of the population may not understand when they should use this service. Before you decide, read about what is involved with this type of policy and who it will serve.

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Can you Borrow Against Term Life Insurance
Can you Borrow Against Term Life Insurance

How Can I Borrow Money From My Life Insurance Policy?

A life insurance policy can be a great way to provide financial security for your family in the event of an unfortunate death. But there are some circumstances when borrowing money from your life insurance policy is appropriate.

For example, if you require immediate access to cash and the investment income on your policy is not enough, then you may borrow against it for up to 5 years before having to pay it back with interest.

But, if you want to avoid the 10 percent penalty for early withdrawals, then try to avoid borrowing from your policy.

The Bottom Line: Don’t borrow against your policy and instead make sensible investments that earn better returns than investing in your life insurance policy.

You can borrow against your entire policy or just part of it, but you will have to pay that money back with interest. In some cases, you can even borrow against the cash value of a term life insurance policy to use as a down payment on a home. An underwriter may allow this if you pledge other assets as collateral. If you don’t pay back the money that you borrow, it’s treated the same way as an early withdrawal.

How a Life Insurance Loan Works

With so many life insurance companies offering policies, it can be difficult to decide which one is the best choice for you. In order to help make this process a little easier, here’s an explanation of how a life insurance loan works.

A life insurance loan is exactly what it sounds like. You make payments over time towards an investment that entitles you to a death benefit when you eventually pass away. The loans are typically between $7,000 and $50,000.

One of the main reasons people choose a life insurance loan is that the interest rate is usually lower than a traditional bank loan. Other advantages include:

On the other hand, life insurance loans have some limitations that you should be aware of before signing up for one:

Making monthly payments on a life insurance loan can take some getting used to if you’re not used to saving money on a regular basis.

Can you take out a loan on term life insurance?

Term insurance provides coverage to someone who is living but has no assets or income. If a policyholder dies during the term of the policy, their beneficiaries receive a death benefit that is equivalent to the policy amount. In contrast, permanent life insurance would provide coverage to someone until they die, but term life insurance can be taken out up to age 75.

Can you use a term life insurance policy as collateral?

Good question! It just so happens that the answer is yes! Term life insurance policies are worth money, but they are not usually what you would call valuable assets. As any entrepreneur might know, assets are usually tangible things like cash, stocks, bonds. But you can use a term life policy to secure a loan or line of credit because it’s considered collateral.

Do you get your money back at the end of a term life insurance?

Getting a quote from an insurance company can be very difficult, especially when you’re trying to compare rates. This can leave many people feeling uncertain about purchasing coverage for themselves or their loved ones. One popular way for individuals to find out if they’ll be able to get their money back at the end of the term is through using an insurance calculator.


Sometimes life insurance policies can be used to borrow money. It’s a great way to expand your personal credit limit and is tax-free. If you are wondering how to borrow against your term life insurance policy, check out this blog post. We hope you enjoyed this blog post.

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