For many people, life insurance is something purchased and filed away, often thought of as an important long-term safety net for loved ones. But if you own a permanent life insurance policy that accumulates cash value, such as whole life or universal life, you may also have access to something extremely practical: the ability to access (or borrow against) the policy’s cash value.
This can be an efficient and flexible way to meet financial needs, especially during major life transitions like periods of unemployment, unexpected expenses, or short-term cash flow challenges. The key is understanding how the process works and how to do it responsibly, ideally in collaboration with your financial advisor.
How Life Insurance Borrowing Works
Permanent life insurance policies accumulate cash value over time. Once you have built up cash value, typically after several years of owning the policy, you may be able to borrow against it. There are two common approaches:
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Getting a Policy Loan directly from the insurance company
Most whole life policies allow policyowners to request a policy loan from the insurance carrier. You typically:
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Request a loan through your carrier
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Receive funds within a couple weeks
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Pay interest to the carrier
Borrowing does not typically require a credit check or lengthy approval process, but it can have negative implications on the growth of your cash value and the amount of dividend you earn while the policy loan is in place. See our True Cost of Borrowing case study for more information.
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Using a line of credit backed by your policy (like an Inclined Line of credit iLOC)
Another option is to collateralize the cash value with a lender who specializes in life insurance backed lending. In this case, the lender issues a loan or line of credit using your policy as collateral.
This can offer some significant potential benefits, including:
- Liquidity without surrendering or withdrawing from the policy
- The ability to leave more cash growing inside the policy (depending on policy structure)
- Flexible borrowing and repayment terms
- Competitive interest rates
There are only a few banks in the market that offer this option, and many require $100,000 or more in cash value in order to qualify. In addition, application processes can often be cumbersome and highly time-consuming, feeling similar to taking out a mortgage.
In recent years, however, fintech innovation has greatly simplified this process, allowing policyowners to unlock the value of their whole life policies more quickly and without the heavy administrative burden historically associated with these loans. This means less paperwork, faster setup, and the ability to manage borrowing and repayment more efficiently.
Inclined is a fintech company offering this type of insurance-backed line of credit, and was designed to make the iLOC process easier for both policyowners and advisors. Inclined’s platform is built to remove friction, streamline collateralization, and make it simple for policyowners to access liquidity while keeping advisors fully involved.
When Borrowing Might Make Sense
There are a number of scenarios where borrowing against your accumulated cash value could make sense. It’s also a powerful realization that an insurance policy can function as a financial tool now, vs. something reserved for much later in life or solely for your loved ones. Common use cases include:
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Temporary cash flow during a job transition
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Funding large purchases, major expenses, or investments
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Paying college tuition
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Consolidating higher interest debt
For many policyowners, a life insurance backed credit line becomes a flexible safety net that is available during unexpected life events without disrupting long-term financial planning.
Why You Should Work With Your Financial Advisor
Borrowing against life insurance is powerful, but it is not something to do casually. That is why it’s essential to work closely with your advisor. They can help you understand:
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How borrowing may affect your policy’s long-term value
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How interest is charged and repaid
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How a loan could impact death benefit over time
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Whether borrowing or withdrawing makes more sense
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How this fits with your broader financial strategy
Borrowing may affect the future performance of your policy or the benefit to your beneficiaries. Your advisor can help you evaluate the trade-offs and decide whether a policy loan or line of credit is appropriate.
How Inclined Works With Advisors
Inclined partners with financial advisors with the goal of helping them add value to their clients. Advisors stay fully involved in the policy relationship and help determine whether opening a line of credit is appropriate.
Inclined also works directly with insurance carriers and handles the collateralization process, which makes the experience straightforward for policyowners.
A Flexible Tool When Used Thoughtfully
Permanent life insurance is more than a long-term asset. It can also be a financial resource throughout your life. Borrowing responsibly, with advisor guidance, allows you to maintain your policy, preserve long-term benefits, and access liquidity when you need it.
If you think borrowing against your policy might be appropriate, start by talking to your Financial Advisor. They can help you understand your options and whether a life insurance backed line of credit is a smart part of your overall plan.
