Is Borrowing Against Life Insurance A Good Idea? 
If the cash value is large enough and the policy can be sustained after taking the planned policy loan , it may be a better alternative to taking conventional loans from a bank . The idea is that you are borrowing some of the cash value of a policy you own . Some policies are better than others - check the cost of taking a policy loan . For example , some policies might charge you 5 % in loan interest but only credit the loaned portion of policy cash value with 3 % . The rate of loan interest may vary over time as well . Thus , the net cost of borrowing may be a few percentage points . Over time , this might add sufficient drag to your policy to make it difficult to sustain . You can pay loan interest as you go but most people choose to add the interest to the policy loan . You can repay the loan or have the loan deducted from the death benefit when you die . As long as the policy does not lapse , the policy loans are income tax free . If the policy lapses , the borrowed amounts taken in the past to the extent of gain in the contract will be subject to income tax in the year of lapse . Your life insurance professional can help you manage your policy to take advantage of the valuable policy feature without unintended consequences . 