Life insurance policy loans during the empty nest years offer greater flexibility, as the death benefit need typically decreases with children’s independence. Cash value has accumulated substantially, providing meaningful borrowing capacity.

​

Policy loans may serve strategic purposes:

​

• Supplementing income before Social Security

• Funding major home renovations

• Covering unexpected medical expenses

 

Interest rates remain favorable (5–8%), and accessing funds doesn’t require credit checks or formal applications.

​

However, important considerations remain:

• Reduced cash value and death benefit: Borrowing reduces both, potentially affecting estate planning goals or a surviving spouse’s financial security. If maintaining life insurance for estate liquidity or legacy purposes, policy loans may undermine these objectives.

• Opportunity cost: Borrowed amounts lose potential growth within the policy.

• Risk of policy lapse: Excessive borrowing relative to cash value can cause the policy to lapse, creating a taxable event on the policy’s inside buildup.

 

Many empty nesters find that policy loans serve effectively as tax-free income supplementation, allowing borrowing against cash value rather than triggering taxable withdrawals—especially valuable if the policy has significant gain.

​

This strategy requires careful management. Work with financial advisors to ensure policy loan strategies align with comprehensive retirement income planning. If you no longer need death benefit protection, consider policy surrender for cash value rather than ongoing borrowing, eliminating interest charges and simplifying retirement finances.