What Does It Mean To Borrow Against Your Life Insurance? 
Life insurance policies that are designed for cash accumulation build up a reserve of cash that you can borrow from at any time for any purpose . You ca n't borrow 100 % of the cash in your policy , but usually up to 90 or 95 % depending on several variables . You can take a fixed loan from your policy which means the cash comes out of your account and you stop earning interest on this money . The charge for a fixed loan is usually very low -LRB- 0 -2 % , depending on policy -RRB- . The second type of loan is called a variable loan or participating loan . With this loan , the money comes out of the insurance company 's general account , so your money remains in your account earning compound interest . The interest rate for this type of loan is higher - usually 5 % or more or a variable rate . The amazing feature of this loan is that you can borrow money at 5 % -LRB- for example -RRB- , but your money may be in your account earning 7 % or more , creating a positive arbitrage . Borrowing against your life insurance policy can be an excellent option , but you should discuss the pros and cons of this strategy with a knowledgeable advisor . 