How Much Money Can I Borrow From A Life Insurance Policy?

This question comes up frequently. If we are taking a life insurance policy out for cash value, it is common to ask, “How much money do I have access to?”  You’ll typically have access to 90-100% of your cash value. Different companies have different limits, which is why we have a range of 90-100%. Some insurance companies will withhold the interest owed on the life insurance loan upfront, which limits  the access to cash value. Here is a brief example:  

• Cash Value: $100,000  
• Loan Interest Rate: 6%  
• Policy Loan Taken: $90,000  
• Insurance Company Withholds 6% Upfront: $5,400  
• Initial Loan Balance: $95,400  

In this example, our cash value is $100,000, but we do not truly have access to the full amount. We have access to approximately 94.6%.  This is demonstrating a case in which a company bills the loan interest upfront, which impacts the amount we can access.  However, most companies do not bill us for loan interest upfront. The interest is simply due at the end of the policy year. Here is another example:   

• Cash Value: $100,000  
• Loan Interest Rate: 6%  
• Policy Loan Taken: $90,000  
• Interest Due End of the Year (6%): $5,400  

However, if the loan interest is not paid, the policy will borrow from the cash value to cover the loan interest expense, bringing the total balance to: $95,400 .