Aflac: Should Anyone Borrow Money from a Life Insurance Policy?

Permanent life insurance is usually more than a tool helping to offer lifelong financial protection. The cash value component helps offer policyholders a potential wealth-building source. Policyholders can use this cash value by borrowing from it. This can let them recoup some of the premiums paid, like with return of premium life insurance, but without losing lifelong coverage. However, as with any debt, policyholders may be cautious about whether getting a loan against their policy is the right move. This article will dive into the benefits of borrowing from a life insurance policy and explore several situations where a policy loan can benefit one financially.

Benefits of borrowing from a life insurance policy

Borrowing from life insurance can offer several benefits to a policyholder:

• No credit checks required: Life insurance loans don’t require credit checks, preventing a hard inquiry and helping those with lower credit scores get loans.¹
• Low interest rates: Policy loans typically offer lower rates than traditional loans and credit cards, making them easier to afford.²
• No fixed repayment date: Policy loans have no fixed repayment schedule.¹ The borrower repays on their schedule. The policy stays active as long as the loan remains smaller than the cash value.
• Tax advantages available: Policy loans generally aren’t taxable unless the policy lapses. This offers a tax-efficient way to supplement one’s savings or income.²

Four situations where borrowing from life insurance can make sense

Understanding how to borrow against life insurance and its benefits can help the policyholder in several situations:

1. Refinancing and consolidating debt

Refinancing typically involves paying off a loan or credit card with a new, lower-rate loan. Consolidating usually involves paying off multiple debts with one to help streamline debt management. Policyholders can do both by borrowing from their policies since rates can be more cost-effective. This can help save on interest and make tracking debt easier.

2. Covering emergencies

Policy loans can help cover emergency costs at a lower interest rate than traditional loans or credit cards.² One can borrow quickly and spread out repayment since there’s no fixed repayment date.¹ Even if one has an emergency fund, a policy loan can help supplement it and reduce reliance on higher-interest debt.

3. Paying for education costs

Education can be one of the most significant costs parents pay. A cash value loan can help cover some or all the cost. Interest rates may be on par with federal student loans and better than private loans. Plus, the repayment schedule helps parents spread repayment over a longer period.

4. Supplementing retirement

Retirement accounts tend to have contribution limits or may not offer a wide range of investment choices. The life insurance cash value can offer an additional tax-advantaged way to help save for retirement. Once one retires, they can utilize their cash value with loans to supplement their other savings and assets.

The bottom line

Permanent life insurance can be an excellent financial vehicle beyond its financial protection. Borrowing from the policy can offer a quick loan at low rates with no credit check or fixed repayment date. So, these loans can help refinance and consolidate debt, cover emergencies, pay for education costs, and supplement retirement savings, among other situations.

The earlier one gets a permanent life insurance policy, the more competitive their premiums and the longer they have to build cash value. Therefore, prospective policyholders should shop for policies today if they want to use one as an additional savings vehicle.

Sources:

¹ Bankrate – Borrowing against your life insurance policy. Updated February 26, 2025. https://www.bankrate.com/insurance/life-insurance/borrow-from-life-insurance-policy/.  Accessed April 1, 2025.

² Investopedia – Life Insurance Policy Loans: Pros and Cons. Updated July 31, 2023. https://www.investopedia.com/ask/answers/111314/what-are-pros-and-cons-life-insurance-policy-loans.asp. Accessed April 1, 2025.

Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent.

Aflac coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, Aflac coverage is underwritten by American Family Life Assurance Company of New York.

Aflac life plans – A68000 series: Term Life Policies: In Arkansas, Idaho, Oklahoma, Oregon, Texas, Pennsylvania & Virginia, Policies: ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68200, A68300 & A68400. In New York, Policies NY68200, NY68300 and NY68400. Whole Life Policies: In Arkansas, Idaho, Oklahoma, Oregon, Texas, Pennsylvania & Virginia, Policies: ICC1368100. In Delaware, Policy A68100. In New York, Policy NYR68100. B60000 series: In Arkansas, Idaho, Oklahoma & Virginia, Policies: ICC18B60C10, ICC18B60100, ICC18B60200, ICC18B60300, & ICC18B60400. Not available in Delaware. Q60000 series/Whole: In Arkansas & Delaware, Policy Q60100M. In Idaho, Policy Q60100MID. In Oklahoma, Policy Q60100MOK. Not available in Virginia. Q60000 series/Term: In Delaware, Policies Q60200CM. In Arkansas, Idaho, Oklahoma, Policies ICC18Q60200C, ICC18Q60300C, ICC18Q60400C. Not available in Virginia.

Coverage may not be available in all states, including but not limited to DE, ID, NJ, NM, NY, VA or VT. Benefits/premium rates may vary based on state and plan levels. Optional riders may be available at an additional cost. Policies and riders may also contain a waiting period. Refer to the exact policy and rider forms for benefit details, definitions, limitations, and exclusions.

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Senior PR & Corporate Communications
Contact: Angie Blackmar, 706-392-2097 or ablackmar2@aflac.com