# Can you borrow against your employer's life insurance policy?

Amelia Palmer · August 4, 2026

> Life insurance policies offered by employers typically come in two forms: term life and permanent life insurance. Term life insurance provides coverage...

Life insurance policies offered by employers typically come in two forms: term life and permanent life insurance.

Term life insurance provides coverage for a specific period and does not accumulate any cash value, meaning you cannot borrow against it.

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Permanent life insurance policies, like whole or universal life, build cash value over time.

This cash value is what allows policyholders to take loans against their policy while they are still alive.

The amount you can borrow from a permanent life insurance policy is usually capped around 90% of the cash value accumulated in the policy.

Different insurers may have varying rules about the exact percentage allowed.

Loans against life insurance policies are considered policy loans, meaning that they do not require credit checks, income verification, or an application process, making them relatively easy to obtain.

When you borrow against your life insurance policy, the loan amounts are not taxed unless you surrender your policy or allow it to lapse.

Therefore, this can be a tax-efficient way to access funds.

Interest is charged on the amount borrowed from life insurance policies, and if the loan is not paid back, the insurance company deducts the owed amount along with the interest from the death benefit paid out to beneficiaries.

Borrowing from the cash value can impact your death benefit; if not repaid, it reduces the final payout to your beneficiaries.

Therefore, it's important to consider the long-term implications of borrowing against your policy.

Some life insurance policies allow for multiple borrowing, meaning you might be able to take out multiple loans against the same policy as long as you stay within the cash value limits.

Permanent life insurance policies may require years to build a significant cash value, meaning it’s often not advisable to rely on this source of funds in the early years of a policy.

Withdrawals from the cash value of a permanent policy can also be made if direct borrowing is not desired.

The main difference is that withdrawals reduce both the cash value and the death benefit.

Employees are often only eligible for group life insurance policies while employed, making it non-portable.

If you leave your job, the policy typically terminates, which can limit access to any cash value built during your employment.

Group life insurance policies commonly offered by employers usually do not provide cash value; thus employees cannot borrow against these unless they have opted for a personal policy with cash value components independently.

Cash value accumulation in permanent life insurance is typically influenced by the policyholder's premiums and the performance of any investment components tied to the policy.

Indexed universal life insurance ties its cash value growth to a stock market index, potentially offering higher cash values than traditional whole life policies, but also carries the risk of lower growth in poor market conditions.

Some policies have caps on the growth of cash value, meaning even if the index performs well, the growth may be limited, impacting the available amounts for borrowing.

In some cases, borrowing against a life insurance policy can be considered safer than a traditional loan, as it does not affect the policyholders' credit score and is secured by the policy.

It is crucial to understand the insurance company’s policy loan provisions and interest rate before borrowing against the insurance, as some companies may have different terms affecting total loan costs.

Borrowing against life insurance policies can offer flexibility, allowing funds to be used for expenses like education, home purchases, or emergency cash flow, though financial planning around its risks is essential.

If the policyholder passes away with an outstanding loan, the amount owed is deducted from the death benefit, which can have significant implications on inheritance planning.

Some policyholders utilize their cash value as part of retirement strategies, providing a source of tax-free income if managed properly.

However, this requires careful planning to avoid adverse tax implications in the future.

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