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Laura Berry

Former Insurance Agent

Former Insurance Agent

Joshua Adamson

Joshua is a copywriter at Obrella who for more than 10 years has been creating content about insurance, health care, and more. He helps companies explain complex insurance subjects in simple ways so that customers can make smart buying decisions. He spends way too much time binge-watching Netflix, loves the outdoors and has a cat who tolerates him.

UPDATED: Aug 18, 2023

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The Pros And Cons Of Taking Out A Life Insurance Loan

Taking out a life insurance loan can be a financial decision that provides both benefits and drawbacks. It is important to carefully consider all aspects before proceeding with such a loan. In this article, we will explore the pros and cons of taking out a life insurance loan, helping you make an informed decision about whether it is the right option for you.

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At Obrella, we are committed to providing accurate and unbiased information to help you make informed financial decisions. Our team of experts thoroughly researches and fact-checks all content to ensure its reliability. Rest assured that you can trust the information you find here.

When it comes to your financial well-being, trust is paramount. That’s why at Obrella, we go above and beyond to earn and maintain your trust. We understand that making important financial decisions can be overwhelming, and that’s why we strive to provide you with the most reliable and up-to-date information available.

Our dedicated team of experts is passionate about delivering accurate and unbiased content. They spend countless hours researching and analyzing financial data, so you can have confidence in the information you find on our platform. We believe that transparency is key, and we want you to feel empowered to make the best decisions for your financial future.

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Obrella is an independent publisher that provides objective advice and guidance. Our editorial team is separate from our business operations, ensuring that our content is free from any conflicts of interest. We strive to provide you with comprehensive and unbiased information to support your financial decision-making process.

When it comes to financial matters, trust is everything. That’s why we have put in place strict editorial guidelines to ensure that our content is always accurate, reliable, and unbiased. Our team of experienced journalists and financial experts work diligently to deliver content that you can rely on. We believe in the power of knowledge and strive to empower you to make informed financial decisions.

Our commitment to editorial integrity extends beyond just words. We have implemented a rigorous fact-checking process to verify the accuracy of the information we provide. We understand that your financial well-being is at stake, and we take that responsibility seriously. You can trust that the information you find on Obrella is thoroughly researched and vetted by professionals who have your best interests in mind.

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To continue offering our services for free, Obrella may earn compensation from affiliate partnerships, advertising, or other sources of revenue. This does not affect the integrity of our content or the recommendations we provide. We are committed to transparency and providing you with trustworthy information.

At Obrella, we believe in providing you with valuable financial information without any hidden agendas. While we generate revenue through various means, such as affiliate partnerships and advertising, we want to assure you that this does not compromise the integrity of our content. We are committed to delivering unbiased and reliable information that you can trust.

Our revenue generation methods are carefully selected to ensure that they do not interfere with the quality and objectivity of our content. We understand that your financial well-being is our top priority, and we would never jeopardize that for the sake of profit. Our commitment to transparency means that we will always disclose any potential conflicts of interest and provide you with the information you need to make informed decisions.

Rest assured that when you visit Obrella, you are accessing a wealth of information that is both trustworthy and reliable. We are dedicated to helping you navigate the complex world of finance with confidence and ease. Your trust is our most valuable asset, and we will continue to work hard to earn and maintain it.

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Simplify Your Life Insurance Provider Comparison

When considering a life insurance loan, it is essential to compare different providers to find the best deal. Obrella offers tools and resources that simplify this process, allowing you to compare rates, terms, and benefits from multiple providers in one place. With our helpful tools, you can make an informed decision with confidence.

Unlocking the Value of Your Life Insurance Policy

If you have a life insurance policy with a cash value, you may have the option to borrow against it. This can be an attractive solution for individuals needing extra funds. By taking out a life insurance loan, you can access the cash value of your policy without surrendering it entirely. This allows you to meet financial needs without losing your life insurance coverage.

Understanding Cash Value in Life Insurance

Before taking out a life insurance loan, it is crucial to understand the concept of cash value. Cash value is the portion of your life insurance policy that accumulates over time. It represents the savings component of the policy and grows tax-deferred. By borrowing against the cash value, you can tap into this pool of funds and utilize it for various purposes.

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Weighing the Benefits and Drawbacks of Life Insurance Loans

Life insurance loans offer several advantages, but it is essential to weigh them against the potential drawbacks. Let’s explore both sides of the coin.

Exploring the Pros and Cons of Life Insurance Loans


  • Accessible Funds: A life insurance loan provides quick and easy access to cash, often with no credit check required.
  • Favorable Interest Rates: Life insurance loans typically offer lower interest rates compared to traditional loans.
  • Tax Advantages: Life insurance loans are generally tax-free, allowing you to use the funds without incurring immediate tax consequences.


  • Reduced Death Benefit: By taking out a life insurance loan, you are essentially borrowing against your death benefit. This reduces the payout your beneficiaries would receive if you were to pass away.
  • Potential Policy Lapse: Failing to repay the loan with interest can lead to a policy lapse, causing you to lose your life insurance coverage.
  • Opportunity Costs: Borrowing against your life insurance policy means missing out on potential investment growth that the cash value could have generated.

It is crucial to carefully consider these pros and cons before deciding to take out a life insurance loan.

Answers to Common Questions

Here are answers to some common questions that can help you gain further clarity:

  1. Can I borrow against any type of life insurance policy?
  2. While many types of life insurance policies build cash value, it is generally limited to permanent life insurance policies such as whole life or universal life insurance. Term life insurance policies typically do not accumulate cash value and therefore cannot be used for loans.

  3. How much can I borrow?
  4. The loan amount you can borrow depends on the cash value of your policy. Most insurers allow policyholders to borrow up to a certain percentage of the cash value, often around 90%. It is important to consult with your insurance provider to understand the specific terms and limitations.

  5. What happens if I don’t repay the loan?
  6. If you do not repay the loan with interest, the outstanding balance will be deducted from the death benefit when you pass away. It is crucial to discuss the terms and conditions of the loan with your insurance provider to fully understand the consequences of non-repayment.

  7. Can I still pay premiums while having a life insurance loan?
  8. Yes, you can continue paying your premiums for the life insurance policy while having a loan. However, it is essential to ensure that you are making timely premium payments to prevent a policy lapse. Be sure to discuss this with your insurance provider to avoid any complications.

Further Reading on Life Insurance

If you want to delve deeper into the complexities of life insurance and related topics, Obrella provides a wide range of informative articles and guides. Our aim is to empower you with the knowledge you need to make informed financial decisions.

In conclusion, taking out a life insurance loan can offer access to much-needed funds, but it is crucial to consider the pros and cons carefully. By understanding the terms, limitations, and potential consequences, you can make an informed decision about whether a life insurance loan aligns with your financial goals and circumstances.

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