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Can I take a loan against my term life insurance policy?

Financial

As the world grows increasingly interconnected, we are being offered new financial products all of the time. One financial product that has gotten more attention in recent years is life insurance. More and more people are understanding that life insurance policies can be a great tool for providing financial flexibility in the future. However, because of the range of life insurance options on the market, as well as the complicated nature of life insurance itself, many confusions exist over what you can and can’t do with your term life insurance policy.

Loans and Life Insurance: How It Works

The way you can take a loan out against a life insurance policy is by taking the loan out against the equity built up in that policy. For example, if you had made $20,000 worth of payments on a $100,000 policy, you’d have $20,000 in equity that you could use as collateral for a loan or maybe withdraw the case value. So you can see, you’re not really taking out a loan against the life insurance, but rather against the payments that you’ve already made to that life insurance policy. To understand how this relates to your term life insurance policy you need to answer the question “What is term life insurance?”

Term Life Insurance and Loans

The Term life insurance definition includes the notion that it only covers a certain period of time. For example, a 10 year term life insurance policy.  A term life insurance payout will not happen after the end of the term, so there is no assured payout. This aspect of term life insurance leads to the following result, you do not build equity that you can take a loan against with term life insurance. This means the answer to the question of “Can I take a loan against my term life insurance?” is unfortunately a no.

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