Term life insurance has no cash value, so you cannot borrow against it
Term life insurance is designed to pay a death benefit if you die during the coverage period — typically 10, 20, or 30 years. It builds no cash value while you are alive. Because there is nothing to borrow against, term policies do not offer loans or withdrawals the way some permanent insurance products do.
If you need cash and own a term policy, borrowing against that policy itself is not an option. However, you do have other ways to access money, and understanding the difference between term and permanent insurance can help you decide what to do next.
Key Takeaways
- Term life insurance has no cash value and cannot be borrowed against, unlike whole life or universal life policies.
- If you need cash urgently, you can surrender a term policy for nothing, take out a personal loan, or explore a home equity line of credit if you own property.
- Permanent insurance products like whole life do build cash value that you can borrow against, but they cost significantly more than term.
- Borrowing against a permanent policy reduces the death benefit your beneficiaries receive unless you repay the loan.
- If you are considering switching from term to permanent insurance solely to access cash, a personal loan is usually cheaper.
Why term policies have no loan option
Term life insurance is pure protection: you pay a monthly or annual premium, and in exchange, the insurance company promises to pay your beneficiaries a set amount if you die during the term. Once the term ends, coverage stops. There is no accumulation of value, no investment component, and no cash sitting in an account.
Permanent insurance products — whole life, universal life, and variable universal life — work differently. Part of your premium goes toward the death benefit, and part builds a cash value account that grows over time. That cash value is what you can borrow against. Term policies simply do not have this feature.
What happens if you need cash right now
If you own a term policy and need money, you have several options that do not involve the policy itself. A personal loan from a bank, credit union, or online lender is often the fastest route. You will need to may have access to based on your credit score and income, but approval can happen within days. Interest rates vary, but if your credit is decent, a personal loan is usually cheaper than converting to permanent insurance.
If you own a home, a home equity line of credit (HELOC) or home equity loan lets you borrow against the equity you have built. These typically carry lower interest rates than personal loans because your home secures the debt. The downside is that your home is at risk if you cannot repay.
You can also surrender your term policy — that is, cancel it and receive any refund due. Most term policies have no cash value, so you will receive nothing. However, if you have paid premiums for many years and your policy has a small surrender value (rare but possible with some policies), you would receive that amount. After surrender, you have no death benefit, so this only makes sense if you no longer need the coverage.
The cost of switching to permanent insurance for cash access
Some people consider switching from term to permanent insurance to gain access to borrowing. This is almost always expensive. A 35-year-old in good health might pay $30 to $50 per month for a 20-year term policy with a $500,000 death benefit. The same person would pay $300 to $500 per month for a whole life policy with the same benefit. That is a difference of $3,000 to $5,000 per year.
Even if you borrow against the cash value of a permanent policy, you are paying that higher premium forever (or until you stop the policy). A personal loan, by contrast, has a fixed term — typically 3 to 7 years — and then it is paid off. Unless you genuinely want permanent coverage for other reasons, switching to permanent insurance just to access cash is an expensive solution to a temporary problem.
How borrowing works if you do have permanent insurance
If you own a whole life, universal life, or variable universal life policy, you can borrow against the cash value that has accumulated. The process is straightforward: you contact your insurance company, request a loan, and they lend you money using your cash value as collateral. You do not have to repay the loan on a set schedule — you can repay whenever you want, or not at all.
The catch is that any loan you do not repay reduces the death benefit your beneficiaries receive. If you borrow $50,000 against a $500,000 policy and never repay it, your beneficiaries get $450,000 instead. Interest accrues on the unpaid balance, and if the loan plus interest grows large enough, it can eventually consume the entire cash value and cause the policy to lapse.
Loans against permanent policies also have interest rates set by the insurance company, which are typically lower than personal loans but higher than home equity lines of credit. The exact rate depends on the policy and the insurer.
Whether to keep your term policy while borrowing elsewhere
If you need cash and own a term policy, the best approach is usually to keep the policy in place and borrow from another source. Term insurance is affordable protection, and if you still need coverage — for example, you have dependents who rely on your income — canceling it to fund a short-term need is a poor trade.
A personal loan or HELOC lets you access cash without touching your insurance. You keep your death benefit intact, and your beneficiaries remain protected. Once you repay the loan, you are done. With permanent insurance, you would be paying higher premiums indefinitely.
The only reason to consider permanent insurance is if you want lifelong coverage that does not expire at a set age. If that is your goal, the ability to borrow against cash value is a bonus feature, not the main reason to buy it.
Frequently Asked Questions
Can I get a loan from my insurance company using my term policy as collateral?
No. Term policies have no cash value, so insurance companies will not lend against them. You would need to borrow from a bank, credit union, or other lender instead, and they would evaluate your creditworthiness, not your insurance policy.
What if I have paid premiums on my term policy for 15 years — is there any cash value by then?
No. Term policies never build cash value, no matter how long you have held them or how much you have paid in premiums. All of your premium goes toward the death benefit and the insurance company's costs. Once the term ends, coverage stops and there is nothing left.
If I borrow against a whole life policy, do I have to pay it back before I die?
No. You can leave the loan unpaid when you die. However, the amount you borrowed plus any accrued interest will be subtracted from the death benefit your beneficiaries receive. If the loan grows large enough, it can reduce or eliminate the payout entirely.
Is it cheaper to get a personal loan or switch to whole life insurance to access cash?
A personal loan is almost always cheaper. A personal loan has a fixed repayment term of 3 to 7 years and then ends. Whole life insurance costs 5 to 10 times more per month than term and continues for life. Unless you want permanent coverage for other reasons, a personal loan is the better financial choice.
What if my term policy is about to expire — can I borrow against it then?
No. Once a term policy expires, it has no value and no borrowing option. If you want to keep coverage, you would need to renew or convert to a permanent policy before the term ends. Some policies allow conversion without a medical exam, but you would start paying permanent insurance rates at that point.