In this life stage, you may find that you’ve had time to accumulate equity in whole or universal life insurance policies, which may be available for borrowing if needed. Life insurance policy loans become more accessible during the family years as permanent policies have had time to build cash value.

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This borrowing option offers unique advantages: no credit check required, no formal application process, and quick access to funds. Interest rates typically range from 5–8%, often lower than unsecured alternatives.

However, the family years can be the worst possible time to reduce your death benefit through policy loans. Your family’s financial dependency peaks during this stage—mortgages, child-rearing costs, and potentially insufficient spousal income to maintain your lifestyle if one of you passes away. Every dollar borrowed reduces the death benefit, leaving your beneficiaries underprotected during their most vulnerable period.

 

The opportunity cost is equally concerning: borrowed cash value no longer earns policy growth or dividends (for participating policies). If you’re considering a policy loan, exhaust other options first and maintain a clear repayment plan. Never borrow for discretionary spending—reserve this tool for genuine emergencies or critical financial opportunities when alternatives are unavailable.

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Finally, understand that unpaid interest compounds over time, and if total loans ever exceed the policy’s cash value, the policy could lapse—creating a taxable event and eliminating death benefit protection entirely.