Borrow Against Your Term Life Insurance: Pros and Cons

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Term life insurance is an important asset that can provide financial protection for your loved ones in the event of your untimely death. However, did you know that it is possible to borrow against your term life insurance policy? In this article, we will explore the pros and cons of borrowing against your term life insurance policy.

Borrow Against Your Term Life Insurance: Pros and Cons

What is borrowing against a term life insurance policy?

Borrowing against a term life insurance policy involves taking out a loan from the insurer using the cash surrender value as collateral. The cash surrender value is the amount of money that has accumulated within your policy over time, which can be accessed while you are still alive.

In order to borrow against a term life insurance policy, you need to have built up sufficient cash surrender value in your account. The amount available to borrow may vary depending on how long you have owned the policy and how much premiums you have paid into it over time.

Pros of borrowing against a term life insurance policy

Here are some potential benefits to consider:

Accessible Loan Funds

One major benefit of borrowing against your term life insurance policy is immediate access to funds without having to apply for other loans or wait for processing times.

No Credit Check Required

Borrowing money through other means often requires credit checks which could negatively impact credit scores or result in higher interest rates with unfavorable terms. Fortunately, with borrowed funds from a whole or universal life(insurance) plan no credit check required since borrowed amounts act as collateral based off of already-held assets like equity; meaning less risk than traditional bank lending options such as lines-of-credit etc…

Low Interest Rates

Another potential advantage when borrowers take out loans from their own policies includes low-interest rates compared with those seen on more widely accessible lending platforms.

Tax-Free Withdrawals

Withdraws taken as loans are usually tax-free if repaid fully, unlike other forms of distributed income like capital gains or dividends. 

Cons of borrowing against a term life insurance policy

While there are some benefits, there are also some significant drawbacks:

Reduces Death Benefit

It’s one thing to be able to access your death benefit while still alive – but the downside is that doing so will reduce the amount left for your beneficiaries upon your passing.

Limits on Amount Borrowed

The total cash value accumulated over time determines how much can be borrowed; In contrast with standard loans and other lending lines, large sums aren’t possible when only using collateral from life insurance policies.

Possible Negative Impact on Policy Performance

Since borrowing funds against the savings portion (cash surrender value) within a policy can interfere with the balance between precious investment growth and coverage (death benefit), it may cause financial problems later down the road. If not careful borrowers must repay all debts including interest rates otherwise risking lapsing their policy by default.


Borrowing against your term life insurance policy might seem like a good idea if you find yourself in need of immediate funds; however, remember that although it offers advantages like low-interest rates and ready availability without requiring credit checks). Not everyone may qualify for its risks could potentially damage parts of precious investments meant to sustain coverage long-term – even compromising potential earnings in fixed-income components altogether depending on frequency taken out. So before making any decisions regarding borrowing against this type of plan consider seeking professional advice to make an informed decision based off your unique situation& circumstances going forward.


Sure, here are three popular FAQs related to borrowing against term life insurance policies:

Can you borrow money from a term life insurance policy?

No, you cannot borrow money from a traditional term life insurance policy because it does not have cash value or an accumulation component like permanent life insurance policies. If you need access to funds while you’re still alive, you may want to consider other financial products such as personal loans or lines of credit.

Can I borrow against my convertible term life insurance policy?

Convertible term life insurance policies can be converted into permanent whole or universal coverage for the duration of the policy period without going through underwriting again. In some cases, these types of policies may allow for partial surrenders and withdrawals when they accumulate enough cash value within the account.

What are the pros and cons of using your whole or universal life insurance policy’s loan feature versus surrendering your coverage in exchange for its cash value?

Using your whole or universal life’s loan feature allows you to use your death benefit while keeping the policy in force if done correctly; however not repaying any outstanding loans will reduce any benefits payable upon death significantly. Surrendering a portion or all of your coverage could result in tax consequences along with reducing any long-term benefits that may have been designated by selecting higher premium payments earlier on in order to build more significant long -term gains through savings accounts within these policies . Consider discussing such features with an advisor who has had experience working with clients’ specific needs around their particular types covering options available at different stages during one’s lifespan so that each individual situation evaluated contextually based on factors such as how much liquidity is required now vs later down the line among many other considerations before making such decisions on lifetime costs associated accordingly depending primarily on liquidity preferences versus future legacy utilizing their available resources effectively over time without interruption due unforeseen circumstances beyond our control (e.g., sudden job loss).