A policy owner can make a policy loan against the policy cash value up to a stated amount which is determined by the insurance company's contract.
Many policies also have provisions for partial surrenders of cash value.
Since loan proceeds are not taxable as income, the policy owner can borrow substantial amounts of money from the policy without paying income tax on those sums. Money extracted from an insurance policy in the form of a policy loan does not trigger any income tax consequences. The more competitive the policy loan interest rate is in comparison to market interest rates, the more advantageous this strategy becomes to the policyholder. In the event that an insured dies with an outstanding loan, the outstanding loan is subtracted from the death benefit and the balance is paid to the beneficiaries, unless the policyholder contracted for a total death benefit not affected by policy loans, in which case it will not be subtracted from the policy proceeds.