Whole life education
Life insurance policy loans: interest, access and tradeoffs
A policy loan uses available cash value as security. It is a loan with a cost and policy consequences, so evaluate it alongside the financing alternatives available to you.
The mechanics in plain language
Some permanent policies allow borrowing against available cash value. Loan interest accrues, and outstanding loans can reduce what beneficiaries receive. Borrowing limits and the effect on policy values depend on the contract. Ask the insurer how borrowing affects dividends and future values rather than assuming the outcome. Sources: Texas Department of Insurance and NAIC.
A cost example you can check
For a purely hypothetical $20,000 loan at 6% simple annual interest, one year’s interest is $1,200. If the interest is added to the balance, the next period starts with a larger debt. Actual policy interest terms can differ. This arithmetic is not an insurer quote and does not estimate policy growth or a net borrowing return.
Compare the complete decision
Put the loan cost beside your reason for borrowing. If you are funding an uncertain business project, keep that project’s possible return separate from the policy obligation. Do not describe an uncertain project return as a reliable repayment source. Compare the available alternatives on cost, repayment flexibility, collateral and what happens if the project takes longer than expected.
Before requesting a loan
- Confirm the current loan value and any existing balance.
- Ask whether the interest rate is fixed or variable.
- Request an illustration with the proposed loan and repayment plan.
- Ask what happens if you do not pay interest in cash.
- Check the remaining death benefit and policy-maintenance requirements.
- Ask what alerts and annual reviews the insurer provides.
Why the exit matters
Do not assume every way of accessing insurance value has the same tax result. The IRS explains that surrender proceeds above the policy’s cost can be taxable. Ask a qualified tax professional about your policy, ownership, jurisdiction and proposed transaction before acting.
Calling the arrangement “borrowing from yourself” can hide an important distinction: confirm who lends the money, who receives the interest and which contract governs it. The useful question is whether the complete arrangement suits your needs.
Sources and scope
US-focused general education, checked against the sources below on 1 November 2026. Examples and checklists are educational illustrations, not insurer quotes or personal recommendations.
- Texas Department of Insurance: life insurance guide
- NAIC: life insurance
- IRS: surrendering life insurance for cash
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