When Can You Take a Cash Value Policy Loan?

 Questions that often arise are “How long before I take a whole life insurance policy loan? How long do I have to wait to access cash value?”.

The short answer is that it depends on the insurance company. Some companies allow policyholders for certain insurance products to receive policy loans in the first year of the contract. Other life insurance products like a survivorship policy, for example, may not allow for policy loans until the second year of the contract. And still others always allow loans after the first year, but not during.

So, it is important to be aware of the specific insurance company and ask when policy loans can be taken.

Big Mutual Companies Offer Flexible Policy Loan Options

The companies we recommend, the big mutual companies, allow whole life policy loans in the first year. That means you can take policy loans within 10 days of opening a cash value life insurance policy. Is it reasonable to do so? We can’t offer advice on that because each policyholder’s financial position is unique. But policy loans are available should you need one.

Several life insurance companies stipulate in their contract language that policy loans are restricted for a six-month approval period. This means the insurance company may take up to six months to process the loan request. This approval process is to ensure the loan request is in good order and that nothing shady is going on. This is particularly true from a compliance and anti-money laundering standpoint.

We, however, have never experienced this type of delay with our cash value life insurance policyholders. However, it is good to be aware of and to read your contract before accepting these restrictions.

In our experience, if you request a policy loan, funds are directly deposited into a policyholder’s bank account via ACH within one to five business days. A printed check may take up to ten days via post but can often be overnighted. When you first start a policy, it is a good idea to register an online account so you can track cash values and request policy loans yourself rather than asking your agent to process it.

No Set Repayment Period

Whole life insurance policy loans are borrowed using the death benefit as collateral. Interest charges are typically competitive and can be paid out-of-pocket or allowed to accumulate. Policy loan proceeds are not designated as income by the IRS and are not subject to income tax.

There is no set repayment period for either loan principle or interest. Be aware, however, that if the loan balance is not repaid, and it grows to exceed cash value, your insurance policy will lapse. If the policy lapses, then income tax will be assessed on the cash value. Moreover, an outstanding policy loan will be deducted from the death benefit should the insured person die. We recommend paying loan interest to prevent this situation from occurring.

Common Reasons for Policy Loans

  • An emergency arises and you need fast access to funds.
  • You’re waiting for bank loan approval and use the policy loan as bridge financing.
  • A lucrative investment opportunity arises.
  • You’ve been turned down for a loan or offered unacceptable terms.
  • Your financial situation has taken a turn and a loan is needed to make insurance premium payments to prevent the policy from lapsing.

Cash Value Continues to Grow

Whole life insurance policy loans do not diminish cash value growth. Interest and dividend growth continue to accumulate as if you never took out the loan.

Maximum cash value whole life insurance policies are flexible tax-free savings vehicles. Cash value funds can be used in emergency situations, used as tax-free loans, and act as an annuity during your retirement years. It can be particularly useful for those who’ve maxed their IRA and 401k limits by providing a safe, stable, tax-free investment.


If you’d like more information on how to use a whole life insurance policy to maximize your tax-free cash position, you can view instructional videos on the IBC Global YouTube channel. You can also contact us for a free, no-obligation consultation from one of our Innovative Life Insurance Specialists.