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Life Insurance Awareness Month

What Life Insurance Can You Borrow From?

By Life Insurance

September is “Life Insurance Awareness Month,” and we wanted to answer this common question: “What life insurance can you borrow from?”

Since life insurance policies come in so many forms, let’s start with the type you can’t borrow from. The most common form of life insurance is called “term life.” Term is the simplest form of life insurance and most common because it contains only a “death benefit” which is paid to a beneficiary upon the insured person’s death.

You cannot borrow from a term life policy because it’s strictly used to provide financial protection in the form of a death benefit, or cash for a loved one in the event of an insured’s passing. Term life insurance guarantees a certain death benefi­t payout if the insured dies during a speci­fied period, such as 1, 2, 10, 15, or 30 years, and then the policy ends. Often premiums for term insurance are level for a certain number of years but some policies may go up as the insured gets older.

Life Insurance Policies You Can Borrow From

Permanent life insurance policies can be borrowed from, because in addition to a death benefit, there is a cash value portion of the policy which you contribute to as part of your premium cost, and the cash portion can grow through time.

Permanent means permanent as opposed to term; the policies don’t end at a certain point of time, they continue for as long as you live and pay the premiums. The cash value in a life insurance policy can be borrowed during your lifetime—you can borrow the cash to fund college costs, start a new business, pay for retirement expenses, and more—sometimes with significant tax advantages as long as the policy remains in force.

Will I Owe Interest On Amounts I Borrow From a Life Policy?

If you borrow part of your cash value, you will borrow the money tax-free in most cases, but you will be charged a fixed or fluctuating interest rate on the outstanding balance of any loan depending on your policy’s terms. You will have to carefully assess or consult with your financial advisor to make sure your policy stays in good standing if you borrow from it.

Some policies continue to credit interest to the total cash-value portion of your account even if you have borrowed money from it, treating the cash value portion as though all the money were still there. In some cases, with some policies, this equals or exceeds the interest you will be charged. You will want to make yourself aware of all policy terms and conditions before making any decisions about borrowing from an insurance policy; this is where good advice can help.

Permanent Types Of Insurance You Can Borrow From

The major types of permanent insurance policies which can build cash value are whole life, universal life, and variable life.

  • Whole Life

Whole life insurance policies are permanent policies with fairly simple terms. They have ­fixed premiums that don’t go up, and cash value accumulation guaranteed by the financial strength of the insurance company providing the policy.

  • Universal Life

Universal life insurance gives consumers flexibility in the premium payments, death benefi­t amounts, and the savings or cash-value elements of their policies, which is why it’s sometimes called adjustable life insurance. There are different types, including one of the more popular forms, called indexed universal life (IUL). With IUL policies, the cash value is benchmarked to the performance of an index or indices, such as the S&P 500 for potential growth. While an IUL policy’s cash value growth is tied to the performance of the selected index or indexes, the money is not actually invested in the market, it is a contract with the insurance company which determines how crediting works based on the index/indices’ performance. Therefore, your principal is protected from stock market risk, but it can grow based on stock market growth as outlined by your particular policy’s terms.

  • Variable Life

With variable life insurance, the cash-value portion of a variable policy is actually invested in the market in what are called “subaccounts;” therefore, there is the potential for loss of principal based on stock market losses. With variable life, you will actually invest and receive prospectuses to review so that you can determine whether or not the subaccount or subaccounts you choose fit with your overall risk strategy. Often variable life policies have higher fees than other types of policies due to the investment management of subaccounts.

If I Borrow Money, What Happens to the Policy After I Die?

Many permanent life insurance policies can be purchased on a “joint survivorship” basis. There are two types: first-to-die, which pays out to the surviving spouse after the first dies; and second-to-die, or survivorship, which pays a death benefit to the heirs after both spouses are gone.

Whether joint survivorship or not, if you borrow cash value from a policy, the amount borrowed is deducted from the total death benefit paid to your named beneficiaries in addition to any remaining fees or interest owed. If you don’t borrow money, the cash value is added to the death benefit.

What Else You Should Know About Life Insurance

  • The death benefit paid to your beneficiaries is usually tax-free and bypasses probate, provided the policy’s beneficiary is an individual rather than a trust.

 

  • Life insurance is considered part of a comprehensive financial plan, and can be used in various ways for estate planning or leaving a tax-advantaged legacy to your loved ones.

 

  • Most life insurance policies require a medical exam, and in cases of ill health, your policy may be denied or the policy costs may be higher. As long as you continue to pay all premiums, your policy cannot be canceled if your health status changes in the future.

 

  • Some policies have provisions for chronic, critical, terminal illness, or long-term care benefits that can be used in lieu of, or in addition to, the death benefit.

 

Each life policy from each different insurance carrier has different features, and the various product choices can be confusing for a consumer to navigate. Additionally, new types of policies are being introduced to the market all the time which may offer better terms. It is very important to work with a qualified advisor to find the policy that might be best suited for you to meet your family’s needs. Call us to learn more about life insurance!

If you have any questions about how you can prepare to fund long-term care, please give us a call today!

(561) 405-7680

This article is for general information purposes only and is not to be relied upon for financial advice. In every case, you should seek the advice of qualified tax, financial and legal professionals to ensure that a life policy is advisable based on your unique circumstances.

Guarantees are provided by insurance companies and are reliant upon the financial strength and claims-paying ability of each individual insurance carrier issuing a life insurance contract.

Life insurance requires medical underwriting; therefore, not everyone will be able to purchase a life insurance policy. Life insurance policies can be complex, and it is recommended that you work with a professional to examine policy terms.

Sources:

  1. https://www.iii.org/article/what-are-different-types-permanent-life-insurance-policies
  2. https://www.investopedia.com/articles/pf/07/whole_universal.asp
2025-09-25
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Understanding Life Insurance: 7 Things You Should Know

By Financial Planning, Life Insurance

Life insurance is an important part of a comprehensive financial plan. Here are 7 things you should know about it.

At its simplest, you probably already know that life insurance provides funds in the case of unexpected loss of life. But there may be other aspects of life insurance that are less clear to you. If there are things about life insurance that you don’t understand, you are not alone! In fact, from research conducted by LIMRA in 2019, American consumers answered “don’t know” to 40% of the questions on a life insurance knowledge test, and if they did answer, they were correct less than half the time (46%).

Not to worry. We’re here to clear up some of the basics about life insurance.

1) Policy Beneficiaries Receive Payouts

The beneficiary or beneficiaries named on a life insurance policy are the ones who receive the payout from the insurance company that issues a life insurance policy. Often a spouse, child, or other loved ones are named as beneficiaries, but in some cases, the beneficiary of a life insurance policy might be a trust.

NOTE: It is very important that a policy owner keeps policy beneficiaries up to date as situations, ages, and relationships change through time. An annual review is recommended.

2) A Life Policy Is “Written On” a Named Insured or Insured Persons, Not Always the Policy Owner

A “named insured” on a life policy is the one whose life is being insured. Generally, an insured person will purchase a policy on themselves, naming themselves as the insured, so that when they die, the death benefit goes to their chosen beneficiaries.

But an owner is not always the same as the insured. As an owner, you control the policy, and you can purchase a life insurance policy on someone else, as long as you would suffer from their death as a family member, business partner, or some other close relationship.

For instance, sometimes spouses will purchase policies naming each of them as joint insureds. These can be set up as “first to die,” where the surviving spouse or other named beneficiary receives the death benefit as soon as the first spouse dies, or as “second to die” (sometimes called “survivorship”) policies that only kick in to pay beneficiaries after both insureds have passed away.

In some cases, you might want to purchase a policy but make someone else the owner, for example, as a strategy inside a trust.

Or sometimes a parent or grandparent will purchase a policy naming a child or toddler as the insured. Naming the child when they are young and healthy (while the cost of insurance is low) can be done as a strategy to help save for the child’s future college expenses, and to ensure that the child has life insurance in place should they develop a health condition later.

3) Life Insurance Usually Requires Medical Underwriting

Life insurance usually requires medical underwriting, which means that once you apply for a life insurance policy, the insured person’s lifestyle, height and weight, medical history, and general level of health will be assessed (and approved) before your policy will be issued. Sometimes a physical exam will be required, and sometimes life insurance coverage will be denied, for example, if the insured person has a terminal condition. But even if you are in poor health, you may be able to obtain a life insurance policy at a higher cost.

And you may be able to purchase life insurance even if you are age 70 or older. In fact, more people are doing so because the estate tax exemption amount is set to drop to around half the amount it is now in the 2026 tax year, and consumers are seeking tax advantaged strategies to pass on wealth to their heirs.

4) Premiums Are What You Pay for Insurance

The word “premium” in the context of a life insurance policy is how much you will pay monthly, annually, or once for single premium life insurance policies. Premiums are determined on an individual policy basis based on many factors, including age, health, and credit.

5) Most Life Insurance Payouts—aka Death Benefits—Are Tax-Free and Probate Free

The money paid by an insurance company to a beneficiary upon the death of the insured person is called a “death benefit.” In most cases, a death benefit is tax-free and bypasses the probate process unless it’s paid to a trust, in which case different IRS rules may apply.

This can be a tremendous help to the spouse and family members during their time of grief and beyond as they look to their futures. It’s often recommended that a life insurance policy’s death benefit be in an amount that can cover monthly living expenses, mortgage payments, future college expenses, etc., protecting families from immediate and future economic devastation.

6) Life Insurance Can Be Used for Estate Planning Trusts and Business Succession Plans

It’s important when setting up complex estate plans, trusts, and business succession plans which may include life insurance that you consult with a team comprised of your financial advisor, estate attorney and CPA/tax professionals. IRS rules and tax laws are always in flux.

For instance, a recent Supreme Court ruling may change the tax ramifications of business buy-sell agreements. Be sure to meet with your team of advisors to review.

7) There Are Many Types of Life Insurance

In addition to term life policies, there are many permanent life insurance policies, including whole life, universal life and variable life. While a death benefit is always part of a life insurance policy, different types of life insurance policies are structured differently, and may contain additional features as part of the structure of the policy itself, or available as a “rider” to the policy for an additional premium amount. For instance, some policies even offer coverage for long-term care should you develop the need for it but provide a death benefit for your heirs if you don’t.

Life insurance is complex, and a life insurance policy is a contract between you and an insurance company. It is recommended that you work with your team of advisors to examine each contract clause thoroughly before purchasing a life insurance policy.

If you would like to discuss life insurance, please contact us!

(561) 405-7680

This document is for general information purposes only and is not to be relied upon for financial advice. In every case, you should seek the advice of qualified tax, financial and legal professionals to ensure that a life policy is advisable based on your unique circumstances.

Life insurance often requires medical underwriting. Guarantees are provided by insurance companies and are reliant upon the financial strength and claims-paying ability of each individual insurance carrier issuing a life insurance contract.

Sources:

2025-04-14
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