Am I able to take a loan out on my life insurance policy in order to pay for my deceased spouse’s funeral?

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Asked August 19, 2013

1 Answer


Whether or not you can borrow against your life insurance policy depends on a number of factors, including the type of policy, the age of the policy, whether you have borrowed from it in the past, and how much Cash Build-Up you have in the policy, if any. If all of these factors check out, then you would be able to borrow against the policy, using the loan for whatever purpose you choose.

Not all life insurance policies have a value for you to borrow against. To do that, you need to have a permanent life insurance policy with a cash value in addition to the face value. As you make your premiums over the years, a portion of them are applied to the cash value of the policy, and that amount earns interest similar to a savings account. Other types of permanent life policies, such as universal life and variable life, allow you to participate in how the premiums are invested and have the potential for greater cash value, or none at all in a worst case scenario.

If you have borrowed from the policy in the past and have not yet paid back the loan, there may not be sufficient funds in your policy cash value to borrow against at the moment. When you take out a loan against a life insurance policy, remember that even though you did not have a credit check to get the loan, there is still interest charged against the loan, so repaying it promptly is very important.

Some policies, specifically whole life insurance, will allow you to contribute more towards the cash value of the policy. This cash build up allows you to put more money aside for later use, earning interest on it similar to a savings account, with access independent of anything that may happen to disrupt your credit later. If your policy has this feature, you may have a significant amount of cash value available to borrow against after a number of years.

Answered August 19, 2013 by Anonymous

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