Can You Borrow Against Universal Life Insurance?

Key Takeaway

You can generally borrow against your universal life insurance policy if you have enough accumulated cash value, but you must make sure sufficient cash value remains to keep the policy in force. Each policy could have different conditions and limitations, so read your policy carefully for complete details.

A price tag representing loans from life insurance

Insuring your life and the future of your family and dependents is perhaps one of the wisest decisions you can ever make. Fortunately, universal life (UL) insurance policies can offer additional benefits, such as being able to borrow from any accumulated savings.

More specifically, this type of life insurance generally enables you to borrow or withdraw from the policy’s cash value, which accumulates over time. If you’re looking for flexible solutions for life insurance, this could be the one.

Moreover, Universal Life Insurance policies usually offer adjustable premiums, which could allow you to pay a reduced amount when faced with serious financial issues like losing your job (as long as there is enough cash value in your account to cover your minimum premiums). Some policyholders in difficult financial situations have asked if they can surrender their universal life insurance policy for cash, or if a universal life insurance can lapse. The answers are simple: 

  • You can surrender your universal life insurance policy and receive any accumulated cash value minus any fees – including surrender fees subject to the policy conditions. You should talk to a trusted financial advisor to understand what surrender fees are and how they work. 
  • Policies can lapse if the premiums aren’t paid.

One of the reasons why a policy might lapse is you took out a loan against your cash value, and then you weren’t able to pay your premiums after the cash value was depleted. This is why it’s a good idea to familiarize yourself with the process of borrowing against or withdrawing from your UL policy, and the implications associated with those actions before making the decision to go forward. Again a trusted financial advisor or life insurance agent could discuss this with you to help determine your potential course of action.

How to Borrow Against Your Universal Life Insurance Policy

As mentioned, your insurance company may allow you to take a loan against your universal life insurance policy.

Because you are borrowing from cash value in your specific policy, the process is different than borrowing money from a bank. However, there are several important requirements that you must fulfill before being allowed to take a loan against your universal life insurance policy. 

For instance, you need to make sure enough money remains in your cash value to cover your minimum premium payments. 

The minimum amount you need to leave in your cash value account varies between insurers and policies. You should always ask your insurance company about the minimum amount that would be required to be left in your policy.

It’s important to note that if you just bought your universal life policy, you likely won’t have enough accumulated cash value to borrow from. In most cases, it may take several years to accrue enough cash value to borrow against. So, you need to pay your premiums diligently to boost your account's financial benefits.

Borrowing against your universal life insurance policy isn’t risk-free, though. You should understand the risks involved before you borrow against your policy so you don’t experience potentially negative financial consequences.

Risks Involved in Borrowing Against Your Universal Life Policy

Most of the time, you are expected to pay back the money you borrow from your cash value as per the agreed-upon repayment schedule. If you’re unable to pay the full amount within the designated time period, there could be consequences – including the potential lapse of your policy.

While not all insurance companies have strict repayment schedules, it’s important to consider paying your loan back to help avoid problems down the line. If your policy loan goes unpaid for long enough, it couldaccruesubstantial interest, which can be difficult to pay. You should discuss any potential policy loan with a licensed insurance agent to understand how it might impact your policy.

If your cash value is depleted, there would be no remaining funds to help pay the minimumpremiums. This could put your ULpolicy at risk of lapsing. Furthermore, if you pass away before your loan is repaid, the outstanding amount would likely be deducted from the death benefits, which could reduce the amount of money paid to your beneficiaries.

Parting Thoughts

You can borrow against your universal life insurance policy, provided that you have enough accumulated cash value in your account and meet all other policy conditions. However, there are risks involved, including the policy lapsing or the outstanding amount being deducted from your death benefits.

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The information above is for educational use only and does not represent insurance, tax or legal advice. It is not a recommendation or solicitation to buy insurance. Please talk to your licensed insurance agent for more information about life insurance and your needs. Please consult with the appropriate professional for tax or legal advice. Guarantees are backed by the claims-paying ability of the issuing insurance company.

Article Author: Meredith Bell
Author Bio: Meredith joined Everly in 2022 and has 20+ years of experience in the life insurance industry. She has held various roles in advertising, marketing, communications, sales and distribution support, and product development. Outside of the office, Meredith lives with her daughter Kennedy and their dog Mavis. Meredith enjoys cooking, camping, gardening, hiking, and bourbon (though not always at the same time). She is a live music enthusiast and an avid reader. Her favorite quote is by Thomas Jefferson: "I cannot live without books." Meredith agrees, but would add cheese, movies, and dogs to that list.

Policies are issued by Everly Life Insurance Company (“Everly Life”), Topeka, KS. Everly Life is not licensed in the state of New York and does not solicit or transact business in New York.

A.M. Best's 15 ratings are a measure of claims-paying ability and range from A++ (Superior) to F (in Liquidation). Ratings are current as of January 25, 2024 and subject to change at any time. While ratings can be objective indicators of an insurance company's financial strength and can provide a relative measure to help select among insurance companies, they are not guarantees of the future financial strength and/or claims-paying ability of a company and do not apply to any underlying variable portfolios. The insurance agency from which a policy is purchased, and any affiliates of those entities, make no representations regarding the quality of the analysis conducted by the rating agencies. The rating agencies are not affiliated with the above-mentioned entities, nor are these entities involved in any rating agency's analysis of the insurance companies.

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