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Borrowing Against Whole Life Insurance

Are you looking for information about borrowing against a whole-life policy? After all, you’ve spent years paying premiums and building that cash value, right? It’s only natural that, after building up your cash value, you want to know: “Can you borrow against a whole life insurance policy?”

Follow along as we answer questions like, “How soon can I borrow against my whole life insurance policy” and more.

How Does a Whole Life Insurance Policy Build Cash Value?

Before we answer the question, “Can you borrow against whole life insurance?” let’s talk about what part of the insurance policy you would borrow against. Whole life insurance policies have something called a cash value, which is similar to a savings account that happens to be attached to your insurance policy.
When you pay your premiums, a portion of that premium goes to the cash value aspect of the policy. And because of compound interest, that cash value slowly builds over time until it matches the face value of the policy. For instance, if you held a $10,000 final expense whole-life policy, the cash value of that policy would eventually reach $10,000.
There is a slight difference in how cash value accumulates for a traditional whole-life policy versus a final expense policy:

Traditional Whole Life:

Because these policies have higher face values, the cash value of the policy builds faster. On a $1,000,000,000 policy, the compound interest would cause the cash value to build quickly.

Final Expense Insurance:

A final expense policy, also called funeral insurance or burial insurance, is a whole life insurance policy that has a lower face value. The policies are only designed to cover the policyholder’s funeral expenses and outstanding debt. Because the face value of the policy is lower, the cash value amount will be, too.

Is it a Good Idea to Borrow Against Your Whole Life Policy?

There is no “right” or “wrong” about whether it’s good to borrow against your whole life policy, but there are some things to think about before you make your decision. .

Pros and Cons of Borrowing Against a Whole Life Policy

Just as with any major decision, it’s wise to think about the benefits and disadvantages before committing to it.


  • You will not have to undergo a credit check.
  • You can borrow some or (almost) all of your cash value, depending on the insurance company.
  • You can do anything with the money.
  • You may be able to get the money instantly, depending on the insurance company.
  • You will use the cash value as collateral.
  • There is no set pay schedule – you can pay back the loan at your convenience.
  • Your cash value will continue to grow as you pay back your loan.
  • Policy loans typically have lower interest rates than banks.


  • You will have to pay interest on the loan.
  • There are penalties if you don’t repay the loan before you pass.
  • You are borrowing money from yourself and paying compound interest on it.
  • If the outstanding loan is more than what you’ve paid in premiums, you may have to pay taxes on it.

Items to Consider Before Borrowing Against Your Whole Life Policy

Along with the pros and cons, there are some things you should take into consideration before deciding whether or not to borrow against your whole life policy. For instance, if you are unable to pay back the loan before you pass, the insurance company will deduct the amount you owe from the death benefit. That means if you have a final expense insurance policy to cover your funeral, your beneficiaries may not receive enough to cover your funeral.
Also, you will have to watch the accumulating interest carefully. If the amount of interest that you owe surpasses the amount of the cash value of the policy, the insurance company could void the policy. In that case, you would lose your insurance coverage and its cash value.

How Do I Borrow Against My Final Expense Whole Life Policy?

Borrowing against whole life insurance isn’t difficult, but you will need to remember a few key things. Here’s what you need to know.

How Soon Can I Borrow Against My Whole Life Insurance Policy?

You can borrow against your whole life policy as soon as the cash value associated with your policy has built sufficiently. Say the face value of your policy is $10,000. You can expect that, over the life of the policy, the cash value will eventually reach $10,000. If you want to borrow $2,000, you will have to wait until the cash value reaches that amount.
In the beginning years of a whole-life policy, the cash value of the policy builds more slowly. That’s because the compound-interest effect hasn’t yet kicked in. But eventually, the cash value will build, and that’s you can begin borrowing against it.

How To Borrow Against a Whole Life Insurance Policy

To take out a loan against the cash value of your whole life insurance policy, you only need to contact the insurance company and ask for the loan form. Fill it out, and submit it to the insurance company. You do not need to qualify for the loan or pass a credit check.
Once you’ve filled out the form, the insurance company will typically deposit the money into your account within a day or two.
If you have recently given the insurance company new account information, changed the account ownership, or plan to exceed the company’s designated loan amount, you may have to provide additional information before you can get the loan.

Types of Loans Available

You have two options when it comes to accessing the cash value of your whole-life insurance policy.

  • Policy loan: In this scenario, you will take out a loan using the cash value of your policy as collateral. You will pay interest on the loan, and the loan must be repaid.
  • Policy surrender: If you no longer need the insurance policy, you can surrender it in exchange for the cash value of the policy. You will have to pay surrender fees, and some insurance companies will only pay a portion of the cash value – say, 90%.

Speak to Your Insurance Company

When thinking about taking out a loan on your whole life insurance policy, it’s important to first speak with your insurance company. All companies have different rules about how much you can borrow and what interest rate you will pay.

Don’t Have a Whole Life Insurance Policy, Yet?

If you haven’t yet taken out a whole-life insurance policy, what are you waiting for? Lincoln Heritage, the largest and most trusted final expense insurance provider, makes it easy for you to get a free quote. Additionally, the company is so confident in its quality products that it offers a free 30-day look period. If you decide you don’t want the policy after receiving it, just contact the company and get a full refund for any premiums you paid.