What Life Insurance Can You Borrow From

Life insurance is often viewed as a safety net for loved ones. However, certain types of life insurance policies can do more than provide a death benefit. Did you know some policies allow you to borrow against their cash value? For young families and new homeowners looking to secure financial stability, this can be a game-changer.

This guide will walk you through the types of life insurance you can borrow from, how it works, and the benefits and risks involved.

Understanding Life Insurance Types

Not all life insurance policies are created equal, especially when it comes to borrowing capabilities. Here's a breakdown of the types of life insurance and which ones allow borrowing.

Term Life Insurance

Can you borrow from it? No.

Term life insurance provides coverage for a specific period, typically 10, 20, or 30 years. It only offers a death benefit and does not accumulate any cash value. This means you cannot borrow against term life insurance.

Whole Life Insurance

Can you borrow from it? Yes.

Whole life insurance is a type of permanent life insurance that includes a cash value component. Over time, as you pay premiums, part of that money accumulates as cash value, which grows at a fixed interest rate. After a few years of building this cash value, you can borrow against it.

Universal Life Insurance

Can you borrow from it? Yes.

Universal life insurance is another type of permanent life insurance that accumulates cash value. Unlike whole life, universal life offers flexible premium payment options and interest rates. You can borrow from the accumulated cash value when needed.

Variable Life Insurance

Can you borrow from it? Yes, but with conditions.

Variable life insurance allows policyholders to invest the cash value in sub-accounts, which are similar to mutual funds. While you can borrow against the cash value, the amount available error occurred during generation. Please try again or contact support if it continues. It is dependent on the performance of these sub-accounts. In addition, borrowing against the cash value will reduce the death benefit if not repaid.

Is it tax-deferred? Yes, variable life insurance offers tax deferral on any growth in the cash value. This means that you won't pay taxes on investment gains until you withdraw them from the policy. This can be beneficial for those looking to maximize their investment returns and minimize their tax burden.

What are some other features?

Variable life insurance also offers a variety of other features, such as flexible premium payments and death benefit options. Premiums can be adjusted based on your financial situation, allowing for more control over your policy. Death benefits can also be customized to fit your specific needs, such as providing for a spouse's or a child's education expenses.

Another feature of variable life insurance is the ability to take out loans against the cash value of the policy. This can come in handy during financial emergencies or unexpected expenses. However, it's important to note that any outstanding loan balance at the time of death will be deducted from the death benefit payout.

Some policies may also offer a waiver of premium option in case of disability. This means that if you become disabled and are unable to pay your premiums, the insurance company will continue to cover them until you can resume payments.

Additionally, some variable life insurance policies offer a rider for long-term care coverage. This means that if you require long-term care, the policy can provide a certain amount of money for those expenses.

Another type of life insurance to consider is term life insurance. Unlike permanent life insurance, term life insurance provides coverage for a specific period, typically 10-30 years. If the insured person passes away during this term, their beneficiaries will receive the death benefit payout.

Term life insurance tends to be more affordable and may be a good option for those on a budget or with temporary financial obligations, such as paying off a mortgage or supporting children until they are financially independent.

However, unlike permanent life insurance, term policies do not build cash value and do not.