APR 5.99% – 35.99%·$100 – $50,000

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Head to head

Personal Loan vs. Life Insurance Policy Loan: Which Costs Less?.

Permanent life insurance (whole life, universal life) accumulates cash value that you can borrow against, often at rates of 5%-8% with no credit check. This sounds attractive, but borrowing against your policy reduces the death benefit paid to your beneficiaries if you die before repaying the loan - and unpaid interest compounds against the policy, potentially lapsing it. A personal loan is more expensive in rate but does not put your family's insurance protection at risk.

Side by side

Personal Loan vs Life Insurance Policy Loan

AttributePersonal LoanLife Insurance Policy Loan
Credit check requiredYesNo - your own policy's cash value is the collateral
Typical rate (2026)8%-25% APR5%-8% (fixed or variable depending on policy)
Repayment scheduleFixed monthly payments requiredNo required repayment schedule - interest accrues
Effect on death benefitNoneOutstanding loan + unpaid interest deducted from death benefit at death
Policy lapse riskNoneIf unpaid interest + loan balance equals cash value, policy lapses (and may trigger a taxable event)
Speed1-3 business days1-2 weeks (policy surrender process)
AvailabilityAny borrower who qualifiesOnly policyholders with permanent life insurance with accumulated cash value
Tax treatment of loan proceedsNever taxableNot taxable if policy stays in force; taxable if policy lapses with outstanding loan
Verdicts by scenario

Which wins, when.

  1. 01

    You have permanent life insurance and beneficiaries depend on the death benefit

    Winner: Personal Loan

    A policy loan that goes unpaid reduces what your family receives at your death. If the insurance was purchased to protect them, using it as a bank account undermines that purpose. A personal loan keeps your insurance intact.

  2. 02

    You need cash at a very low rate and have no dependents who rely on the death benefit

    Winner: Life Insurance Policy Loan

    At 5%-6% with no credit check and no required repayment, the policy loan is substantially cheaper. If your death benefit is not critical for beneficiaries and you have sufficient cash value, borrowing from the policy can be the lowest-cost option available.

  3. 03

    You have a large unpaid balance from a previous policy loan

    Winner: Personal Loan

    Compounding unpaid interest can grow the loan balance to the policy's cash value and cause a lapse. Taking a personal loan to pay off a dangerous policy loan balance may protect the insurance and be worth the higher rate.

  4. 04

    You need funds quickly and your credit prevents personal loan approval

    Winner: Life Insurance Policy Loan

    No credit check and no income verification make the policy loan accessible when personal loans are not. But monitor the outstanding balance carefully to prevent policy lapse.

Common questions

Frequently asked.

Do I have to repay a life insurance policy loan?+

No, there is no required repayment schedule. However, unpaid interest is added to the loan balance, which compounds annually. If the total loan balance (including accumulated interest) grows to equal the policy's cash value, the policy lapses. A lapsed policy with an outstanding loan triggers ordinary income tax on the outstanding loan balance above your tax basis in the policy. This is why 'no required repayment' is not the same as 'free money.'

What happens to a policy loan if I die before repaying it?+

The outstanding loan balance (including all unpaid interest) is deducted from the death benefit before payment to your beneficiaries. Example: $500,000 death benefit, $80,000 outstanding policy loan. Beneficiaries receive $420,000. The insurance company does not chase beneficiaries for the loan - it is simply netted against the death benefit.

Can I borrow against term life insurance?+

No. Term life insurance has no cash value accumulation. Only permanent life insurance policies (whole life, universal life, variable universal life) build cash value that can be borrowed against. If you only have term life, a policy loan is not an option.

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