Managing Your Policy / Borrowing Against Your Policy

Borrowing against your policy's cash value

Final expense policies are typically whole life insurance, which means they build cash value over time in addition to the death benefit. If your policy has been in force for a while, borrowing against that cash value is usually an option — but it works differently from a typical bank loan, and it's worth a professional explanation before you use it.

What you're actually borrowing against

Cash value is a separate, slower-growing pool of money attached to a whole life policy — it's not the same as the death benefit, and it isn't available on day one. It builds gradually as you pay premiums, typically accumulating faster the longer the policy has been active. You can only borrow up to whatever cash value has actually accumulated, not the full face amount of the policy, so a policy that's only been in force a short time may not have much — or anything — to borrow against yet.

How the loan itself works

Because you're borrowing against money that's already yours, a policy loan generally doesn't involve a credit check or approval process the way a bank loan does. Interest accrues on the amount you borrow, at a rate and under terms set by your carrier, and there's typically no fixed monthly repayment schedule — you can often repay on your own timeline, or not at all. That flexibility is convenient, but it comes with a real tradeoff covered below.

What an unpaid loan does to your policy

Any loan balance, plus accrued interest, is generally subtracted from the death benefit when a claim is eventually paid — so an unpaid loan directly reduces what your beneficiary receives. If the loan and interest are left to grow long enough that the balance catches up to the policy's total cash value, the policy can lapse entirely, ending coverage altogether. That risk is the main reason to treat a policy loan seriously rather than as free money.