Life Insurance Policy Loan

Life insurance policy loans can be an attractive borrowing option during less active retirement, particularly for those with permanent policies containing substantial cash value.

Key Features:

• No credit checks required

• No mandatory repayment schedule

• Typically lower interest rates than conventional loans

Considerations and Risks:

• Borrowed amounts reduce your death benefit, which may impact legacy planning for heirs

• Interest accrues on the outstanding balance

• If the loan grows too large relative to the policy's cash value, the policy could lapse, creating potential tax consequences on accumulated gains

• The opportunity cost: the cash value you borrow against would otherwise continue growing tax-deferred within the policy

Best Uses:

• Short-term liquidity needs

• Bridging income gaps before other retirement funds become accessible

• Avoiding taxable events from retirement account withdrawals

Important Tips:

• Review your policy’s specific loan provisions, as terms vary significantly between carriers and policy types

• Understand how unpaid interest compounds and affects the policy’s long-term viability and death benefit