Best Life Insurance to Borrow From [Updated for 2025]

Life insurance is typically thought of as a safety net for your loved ones after you pass away. But what if it could also serve as a financial resource during your lifetime? Certain types of life insurance policies build cash value, offering the unique ability to borrow against that accumulated value. Understanding which policies offer this feature, how it works, and finding the best life insurance you can borrow from requires careful consideration. This guide, updated for 2025, will walk you through the essentials.

Choosing the right life insurance policy is a significant decision, one that impacts your financial security and your family’s future. At Insurance By Heroes, we understand the weight of this choice. Founded by a former first responder and military spouse, and staffed by professionals who share a background in public service, we bring a unique perspective rooted in commitment and trust. As an independent agency, we aren’t tied to any single carrier. Instead, we partner with dozens of top-rated insurance companies, allowing us to shop the market extensively and find the policy structure and features – including loan provisions – that truly align with your individual needs and goals.

Understanding How Life Insurance Loans Work

Before diving into the “best” types of policies, let’s clarify what borrowing against life insurance actually means. When you take a loan against your policy, you’re not withdrawing your own money in the traditional sense. Instead, the insurance company lends you money and uses the accumulated cash value within your policy as collateral for that loan.

Here are the key concepts involved:

• Cash Value: This is a component found primarily in permanent life insurance policies (like whole life or universal life). A portion of your premium payments goes towards the death benefit, another towards the insurer’s costs, and a portion builds up as cash value on a tax-deferred basis. This cash value typically grows over time.
• Policy Loan: This is the amount you borrow from the insurer, secured by your policy’s cash value. The maximum loan amount is usually a percentage (often 90-95%) of the current cash value.
• Interest Rate: The insurance company charges interest on the policy loan. Rates can be fixed or variable, depending on the policy and the insurer. This interest accrues over time, adding to the outstanding loan balance if not paid.
• Repayment: Policy loans generally offer flexible repayment options. You can choose to pay back the principal and interest on a schedule, pay only the interest, or make no payments. However, choosing not to repay has consequences.
• Impact on Death Benefit: Any outstanding loan balance, including accrued interest, at the time of your death will be deducted from the death benefit paid out to your beneficiaries. If you borrow $50,000 (plus $5,000 in accrued interest) against a $500,000 policy, your beneficiaries would receive $445,000.
• Loan vs. Withdrawal: Taking a loan is different from making a withdrawal or surrendering the policy. Loans are generally not considered taxable income, whereas withdrawals up to your basis (total premiums paid) are tax-free, but gains above the basis are taxable. Surrendering the policy entirely cancels the coverage and may have significant tax implications.

The ability to access funds via a policy loan can be a valuable financial tool for emergencies, opportunities (like a down payment or starting a business), or supplementing retirement income, often with potentially favorable interest rates and without needing a credit check. However, it’s crucial to manage the loan responsibly to avoid unintended consequences.

What Types of Life Insurance Allow Borrowing?

The defining characteristic of life insurance you can borrow against is the presence of cash value. This immediately rules out one major category: term life insurance.

Term life insurance provides coverage for a specific period (e.g., 10, 20, or 30 years). If you pass away during the term, your beneficiaries receive the death benefit. If you outlive the term, the coverage expires (unless renewed or converted). Term policies are typically more affordable than permanent policies precisely because they do not build cash value. No cash value means there’s nothing to borrow against.

The policies renowned for offering loan capabilities fall under the umbrella of **permanent life insurance**. These policies are designed to last your entire lifetime, as long as premiums are paid, and they include a cash value component that grows over time. The primary types include:

Whole Life Insurance

Often considered the most traditional and straightforward type of permanent life insurance, whole life offers guarantees that many find appealing. Key features include:

• Guaranteed Death Benefit: The payout amount is fixed and guaranteed for life, provided premiums are paid.
• Guaranteed Level Premiums: Your premium payments remain the same throughout the life of the policy.
• Guaranteed Cash Value Growth: The policy’s cash value grows at a guaranteed minimum rate specified in the contract. This predictability makes it easier to plan for future loan potential.
• Potential Dividends (Participating Policies): Many whole life policies are “participating,” meaning they may receive annual dividends from the insurer if the company performs well financially (e.g., better-than-expected investment returns, lower mortality rates). Dividends are not guaranteed, but they can significantly enhance cash value growth and the death benefit over time. Policyholders can often use dividends to buy paid-up additional insurance (increasing cash value and death benefit faster), reduce premiums, or receive them in cash.

Because of its guarantees and predictable growth, whole life insurance is frequently cited when discussing the best whole life insurance to borrow money or the best whole life insurance that you can borrow against. The stability provides a reliable basis for future borrowing needs.

Universal Life Insurance (UL)

Universal life insurance offers more flexibility than whole life, but with fewer guarantees. Features include:

• Flexible Premiums: Within certain limits, you can often adjust the amount and frequency of your premium payments. Paying the minimum premium will keep the policy active but may slow cash value growth. Paying more can accelerate growth.
• Adjustable Death Benefit: You may be able to increase or decrease the death benefit amount (subject to underwriting for increases).
• Cash Value Growth: Cash value earns interest based on rates declared by the insurer, which can fluctuate but are typically subject to a minimum guarantee. Growth can be less predictable than in whole life.
• Potential Risks: The flexibility comes with responsibility. If you consistently pay only the minimum premium, or if interest rates credited are low for extended periods, the cash value might not grow sufficiently to cover policy charges, potentially leading to a policy lapse if not managed carefully.

UL policies certainly allow borrowing against their cash value. However, the variable nature of cash value growth compared to whole life means the amount available to borrow might be less predictable. Some variations exist, like Indexed Universal Life (IUL), where cash value growth is linked to the performance of a market index (like the S&P 500), offering potentially higher returns but also more complexity and potential volatility (though typically with a floor to prevent losses).

Variable Universal Life Insurance (VUL)

VUL policies offer the most potential for cash value growth but also carry the highest risk. Cash value is invested in sub-accounts similar to mutual funds. Growth potential is higher, but the cash value can also decrease if investments perform poorly, directly impacting the amount available for loans and potentially jeopardizing the policy itself. Due to this volatility, VUL is generally considered riskier if the primary goal is stable borrowing capacity.

While UL and VUL offer loan provisions, the guarantees and predictability inherent in whole life often make it the preferred choice for individuals specifically seeking the best life insurance to borrow against for stable, long-term access to funds.

Why Whole Life Often Shines for Policy Loans

When the keywords focus on the “best whole life insurance that you can borrow against,” there are concrete reasons why this policy type frequently earns that distinction. Its structure is particularly well-suited for individuals prioritizing the loan feature:

• Unmatched Predictability: The guaranteed cash value growth provides a clear, reliable projection of future borrowing capacity. You know the minimum value your policy will have at any given point, assuming premiums are paid. This contrasts sharply with the potential fluctuations in UL and especially VUL policies.
• Stability in Volatile Times: Whole life cash value growth is generally insulated from direct market downturns, unlike VUL or even some aspects of IUL performance. This stability is crucial if you anticipate needing access to funds regardless of economic conditions.
• Dividend Potential: While not guaranteed, dividends from participating whole life policies can act as a powerful accelerant for cash value growth. Using dividends to purchase paid-up additions (PUAs) is a popular strategy to maximize both the death benefit and the cash value available for loans over the long term. Historically, many well-established mutual insurance companies have a strong track record of paying dividends.
• Simplicity and Discipline: The fixed premium structure enforces a disciplined savings approach, steadily building the cash value foundation necessary for substantial loans later in the policy’s life.

However, it’s crucial to remember that even within whole life, policies differ. Some are designed for maximum early cash value accumulation (often with higher premiums), while others prioritize long-term death benefit growth. The “best” whole life policy for borrowing depends heavily on your specific time horizon, budget, and how you intend to use the loan feature.

This is where working with an independent agency like Insurance By Heroes becomes invaluable. We don’t push one company’s product. We analyze policies from numerous carriers, comparing their guaranteed growth rates, dividend histories (for participating policies), premium structures, and specific loan provisions to find the one that truly serves your objectives. We understand that for many, especially those from service backgrounds, reliability and guarantees are paramount.

Finding the *Actual* Best Life Insurance Policy for *You*

Searching for the “best life insurance to borrow from” implies a single answer, but the reality is far more personal. The ideal policy hinges entirely on your unique circumstances, financial goals, risk tolerance, and budget. What works perfectly for one person might be unsuitable for another.

Consider these factors:

• Your Primary Goal: Is the loan feature the main reason you’re buying permanent insurance, or is it a secondary benefit alongside the death benefit protection?
• Time Horizon: When do you anticipate needing to borrow? Cash value grows slowly in the early years of any policy.
• Budget: Permanent life insurance premiums are higher than term life. Whole life often has higher premiums than UL initially. Can you comfortably afford the required premiums long-term?
• Risk Tolerance: Are you comfortable with the potential fluctuations of UL or VUL, or do you prefer the guarantees of whole life?
• Need for Flexibility: Do you anticipate needing to adjust premium payments in the future (favoring UL)?

This is precisely why navigating the options alone can be overwhelming and potentially lead to choosing a suboptimal policy. An independent insurance agency like Insurance By Heroes plays a critical role here. Our allegiance is to you, the client, not to any single insurance company.

• Market Access: We have established relationships with dozens of the nation’s leading life insurance carriers. This broad access allows us to compare a wide array of whole life, universal life, and other policy types side-by-side.
• Understanding Nuances: We delve into the fine print. How does Carrier A’s loan interest rate compare to Carrier B’s? Does Carrier C use direct or non-direct recognition (more on this below)? These details significantly impact the true cost and benefit of borrowing.
• Tailored Solutions: We take the time to understand your situation – your family structure, your financial picture, your long-term aspirations. Our team, many of whom come from backgrounds serving others (like first responders, military families, educators), is dedicated to finding coverage that protects what matters most *to you*. We translate complex insurance concepts into clear, understandable options.
• Objective Advice: Because we aren’t captive agents pushing one company’s agenda, we can provide objective guidance on whether whole life’s guarantees or UL’s flexibility might be a better fit, and which specific policy from which carrier offers the most advantageous loan features for your profile.

Remember, not every company or policy is right for everyone. An insurer might offer excellent whole life policies but less competitive universal life options, or vice-versa. One company might have great rates but restrictive loan provisions. Insurance By Heroes helps you cut through the noise and find the specific solution that aligns with your need for borrowable cash value and overall financial protection.

Key Differences in Loan Features Across Companies

Even among policies of the same type (e.g., whole life), the specific terms and conditions governing policy loans can vary significantly from one insurance carrier to another. Understanding these differences is crucial when selecting the best life insurance you can borrow against.

Loan Interest Rates

Insurers charge interest on policy loans. This rate can be:

• Fixed: The rate is set at the policy’s inception and remains the same for the life of the loan. This offers predictability in loan costs.
• Variable: The rate fluctuates, often tied to an external index like the Moody’s Corporate Bond Yield Average. Variable rates might start lower but can increase over time, making long-term borrowing costs less certain.

The method for determining the rate and whether it’s fixed or variable is a key point of comparison.

Direct Recognition vs. Non-Direct Recognition

This is perhaps one of the most critical, yet often overlooked, distinctions affecting policies you borrow against:

• Non-Direct Recognition: With these policies, the insurance company continues to credit the *entire* cash value (both the portion used as collateral for the loan and the non-loaned portion) with the same interest rate or potential dividends it would have received if no loan existed. Many experts consider non-direct recognition policies generally more favorable for borrowers, as your cash value continues to grow robustly even while a loan is outstanding.
• Direct Recognition: With these policies, the insurer adjusts the interest or dividends credited to the portion of the cash value collateralizing the loan. This loaned portion might earn a lower interest rate, or the dividend calculation might be negatively impacted compared to the non-loaned portion. This can effectively increase the net cost of borrowing.

If maximizing the potential for your cash value to grow even while borrowing is important, seeking out carriers offering non-direct recognition policies is often a priority. Insurance By Heroes can readily identify which of our partner carriers offer this advantageous feature.

Loan Maximums

While most insurers allow loans up to a high percentage of the cash value (e.g., 90-95%), the exact percentage can differ slightly. Furthermore, the definition of “cash value” used for the calculation might vary (e.g., guaranteed cash value vs. total cash value including dividends).

Repayment Terms and Flexibility

Most policy loans offer significant repayment flexibility. You typically aren’t required to make payments on a fixed schedule. However, understanding the consequences of non-repayment is vital:

• Interest accrues on the outstanding loan balance, increasing the total amount owed over time.
• The outstanding loan balance (principal + accrued interest) is deducted from the death benefit.
• Crucially, if the total outstanding loan ever exceeds the policy’s cash value, the policy could lapse. A policy lapse can trigger income tax consequences on any gains within the policy and result in the loss of coverage.

While flexibility is a benefit, having a plan for managing the loan, even if it’s just paying the annual interest, is generally advisable to protect the policy and the death benefit.

Weighing the Pros and Cons of Life Insurance Loans

Borrowing against your life insurance cash value offers distinct advantages, but it’s not without potential drawbacks. Carefully consider both sides:

Pros:

• Favorable Interest Rates (Potentially): Loan rates are often lower than those for unsecured personal loans or credit cards.
• No Credit Check: Your credit history doesn’t affect your ability to get the loan or the interest rate; it’s secured by your cash value.
• Repayment Flexibility: As discussed, you usually don’t have mandatory repayment schedules, offering flexibility during tight financial periods.
• No Impact on Credit Score: Taking out or carrying a policy loan balance does not typically affect your credit report or score.
• Tax Advantages: Loan proceeds are generally received income-tax-free. Interest paid on the loan is usually not tax-deductible.
• Privacy: It’s a private transaction between you and the insurance company, without involving banks or other lenders.
• Access to Capital: Provides liquidity for various needs – emergencies, investments, education funding, supplementing retirement income, etc. – without liquidating other assets.

Cons:

• Reduced Death Benefit: This is the most significant consequence. Any unpaid loan balance directly reduces the amount your beneficiaries receive.
• Accruing Interest: Interest continuously adds to the loan balance if not paid, potentially eroding cash value and further reducing the net death benefit over time.
• Risk of Policy Lapse: If the loan balance grows larger than the cash value (due to unpaid interest or poor policy performance in UL/VUL), the policy can terminate. This is a critical risk to manage, as it means loss of coverage and potentially a large tax bill.
• Slow Initial Growth: Cash value accumulates slowly in the early years of a policy. You won’t be able to borrow significant amounts immediately after purchasing coverage. It’s a long-term strategy.
• Impact on Dividends (Direct Recognition): As noted, direct recognition policies may pay lower dividends on the loaned portion, slowing overall policy growth compared to non-direct recognition.
• Opportunity Cost: While the cash value securing the loan might still grow (especially in non-direct recognition policies), the net effect might be less growth than if no loan were taken.

Understanding these trade-offs is essential. A policy loan can be a powerful tool when used strategically and responsibly, but mismanagement can undermine the very purpose of the life insurance policy.

How Policy Loans Compare to Other Borrowing Options

When you need funds, a life insurance policy loan is just one option. How does it stack up against others?

• Personal Loans: Often unsecured, meaning interest rates are highly dependent on your credit score and can be higher than policy loan rates. Approval isn’t guaranteed. Repayment schedules are fixed.
• Home Equity Line of Credit (HELOC): Uses your home equity as collateral. Interest rates are often variable and competitive, but require owning a home with sufficient equity. Involves application process, closing costs, and puts your home at risk if you default.
• 401(k) Loans: Allows borrowing from your retirement savings. Interest is paid back to yourself, but you lose potential investment growth on the borrowed amount. Job loss may trigger immediate repayment requirements. Strict limits on loan amounts.
• Credit Cards: Easily accessible but typically carry very high interest rates for carrying a balance, making them costly for long-term borrowing.

Compared to these, life insurance loans offer unique benefits like privacy, no credit check, repayment flexibility, and generally tax-free access to funds. However, the impact on the death benefit and the risk of lapse are specific downsides to consider carefully.

The Insurance By Heroes Commitment: Service, Choice, Trust

Choosing the right life insurance policy, especially one intended for potential borrowing, requires more than just comparing quotes online. It demands understanding the intricate details, aligning policy features with personal goals, and working with someone you can trust.

At Insurance By Heroes, our foundation is built on service. Our founder, a former first responder and military spouse, experienced firsthand the importance of reliable protection and sound financial planning for families who serve. This ethos permeates our agency. Our team includes professionals with backgrounds in teaching, healthcare, military service, and first response – people dedicated to educating and empowering clients, not just selling policies.

Our independence is your advantage. By working with dozens of carefully selected, financially strong insurance carriers, we provide unbiased access to the market’s best options. We aren’t limited to promoting one company’s definition of the “best life insurance to borrow from.” Instead, we analyze your needs and then search across our extensive network to find the whole life or universal life policy with the optimal combination of:

• Strong cash value growth potential (guaranteed and/or non-guaranteed)
• Favorable loan provisions (considering interest rates and direct vs. non-direct recognition)
• Competitive premiums
• Carrier financial strength and reputation
• Overall suitability for your long-term objectives

We believe in transparency and education. We’ll explain the pros and cons of each option, clarify the complex terms, and help you make an informed decision that provides both protection for your loved ones and potential financial flexibility for you.

Taking the Next Steps

If the idea of using life insurance cash value as a future financial resource appeals to you, here’s how to proceed:

1. Define Your Needs: Clearly articulate why you want this feature. Is it for emergencies, planned expenses, or retirement? What’s your timeline?
2. Assess Your Budget: Determine how much premium you can comfortably afford for the long term. Remember, permanent policies require consistent funding to build cash value effectively.
3. Understand the Commitment: Permanent life insurance is a lifelong financial tool. Be prepared for the long-term nature of the policy.
4. Seek Personalized Guidance: The nuances between policies and carriers are significant. Generic advice isn’t enough. Partner with an independent agent who can provide tailored recommendations.

Get Your Personalized Life Insurance Quote Today

Navigating the world of permanent life insurance and policy loans doesn’t have to be complicated. The key is finding the right policy structure and features tailored specifically to your situation and goals. Whole life insurance often stands out for its guaranteed growth and predictability, making it a strong contender for the best life insurance you can borrow from, but the ultimate answer depends on you.

At Insurance By Heroes, we specialize in simplifying this process. As an independent agency founded on principles of service and trust, we leverage our access to dozens of top carriers to find the coverage that best fits your needs – whether that’s maximizing borrowing potential, securing a guaranteed death benefit, or finding a balance between the two.

Don’t rely on generic recommendations. Let our experienced team, many with backgrounds in public service who understand the value of reliable protection, guide you through the options. Take the first step towards securing your financial future and exploring the benefits of cash value life insurance.

Ready to explore your options? Fill out the quote form on this page right now. An Insurance By Heroes professional will review your information and reach out to discuss personalized solutions from top-rated carriers, helping you find the best life insurance policy you can borrow against for your unique needs. Get started today!