How to Take a Loan Out Against a Life Insurance Policy

Permanent life insurance policies, such as whole life, universal life and variable universal life, are insurance contracts that have cash value, which can be accessed through a policy loan. Loans against life insurance policies might never need to be repaid, and, if they do, the interest rates are usually between 6 percent and 8 percent.
Keep in mind, though, that taking out a loan against a policy always reduces the death benefit.

Things You'll Need

• Permanent insurance policy

Instructions

1. Determine how much of a loan you need. The amount available in the contract may be more or less, but decide the amount you want first.

2. Contact the customer service department of your insurance company. You can find the telephone number for the home office of the insurer on your insurance contract.

3. Ask the representative for an in-force illustration and an illustration with a loan for the amount you'd like. If the amount of cash you need is more than is available in the policy, ask for an illustration showing the maximum possible loan amount. The illustrations--showing the projected values in the contract, including the death benefit, cash value and monthly premium--will be mailed to you within a few business days.

4. Find out the impact on the policy of taking out the loan you want. When taking out a loan you will be lowering the amount of the death benefit for years to come, so be sure that the coverage will be sufficient.

5. Call the home office and ask them to process the loan. The insurer may require you to fill out some paperwork, but the check should be processed in a few business days.

6. Ask the customer service representative to send you illustrations showing full and partial repayment options. A few extra premium dollars per month often can repay the loan quickly.

Tips & Warnings

• If you have whole life coverage, consider surrendering some paid-up coverage as an alternative to taking a loan.