You cannot borrow against a term life insurance policy because term policies have no cash value
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 savings component, no investment account, and no cash value that accumulates over time. Because there is nothing stored in the policy itself, there is nothing to borrow against. If you need money and own only a term policy, borrowing against that policy is not an option.
This is the core difference between term life and permanent life insurance (whole life, universal life, and variable universal life). Permanent policies do build cash value, and that cash value can sometimes be borrowed. Term policies do not.
If a lender or website claims you can borrow against a term policy, they are either describing a different product or misrepresenting how term insurance works. The policy itself contains no funds to access.
Key Takeaways
- Term life insurance policies have no cash value and cannot be borrowed against under any circumstances.
- Permanent life insurance policies (whole life, universal life) do build cash value and may allow loans or withdrawals, though terms vary by policy and insurer.
- If you need cash and own a term policy, you can surrender it for nothing, take out a personal loan, or explore other assets — but the policy itself offers no borrowing option.
- Some people confuse term life with permanent life because both are called "life insurance," but the borrowing rules are completely different.
Why term policies have no cash value to borrow
Term life premiums are low because the insurance company is only taking on risk for a set number of years. Once that term ends, the policy expires and the company's obligation ends. The premiums you pay go toward the death benefit pool and the insurer's costs — not into a reserve account attached to your name.
With permanent life insurance, premiums are much higher because part of what you pay goes into a cash value account that belongs to you. That account grows over time (through interest, dividends, or investment performance, depending on the type). That account is what can be borrowed against.
Term insurance is pure protection. Permanent insurance is protection plus a savings or investment component. You cannot borrow from a policy that was never designed to hold your money.
What happens if you need cash and own a term policy
If you own a term policy and need money, you have several options — but borrowing from the policy is not one of them.
You can surrender the policy to the insurance company and receive nothing in return. Term policies have no cash surrender value, so you get zero dollars. The policy ends, and your coverage is gone. This is rarely a good choice if you still need life insurance protection.
You can take out a personal loan from a bank, credit union, or online lender. This is separate from your insurance and does not affect your coverage. The loan terms, interest rate, and repayment schedule depend on the lender and your credit.
You can explore other assets — savings accounts, investment accounts, home equity, or retirement accounts (though retirement account withdrawals often carry tax penalties). These are not tied to your insurance policy.
You can convert your term policy to permanent insurance if your policy includes a conversion rider. This allows you to switch to a whole life or universal life policy without a new medical exam. The new permanent policy would build cash value over time, which could eventually be borrowed against — but this takes years and costs significantly more in premiums.
How borrowing works with permanent life insurance
If you own a permanent life insurance policy (whole life, universal life, or variable universal life), borrowing is sometimes possible — but the rules depend on your specific policy and insurer.
With whole life insurance, you can typically borrow against the cash value once it has accumulated enough. The insurance company lends you money using your cash value as collateral. You pay interest on the loan (the rate is set in your policy). If you die before repaying the loan, the death benefit is reduced by the outstanding loan balance plus interest.
With universal life insurance, borrowing rules vary widely by policy. Some policies allow loans against cash value; others allow withdrawals instead. Some allow both. You need to read your specific policy or call your insurer to know what is available.
With variable universal life insurance, borrowing is sometimes available, but again, the terms are set by your individual policy contract.
The key point: permanent policies can offer borrowing because they hold your money. Term policies cannot, because they do not.
The cost of borrowing against permanent insurance
If you borrow against a permanent policy, you pay interest to the insurance company. The interest rate is typically stated in your policy — it might be a fixed rate or a variable rate tied to an index. Rates vary by insurer and policy type.
The loan reduces your cash value. If you borrow $10,000 and the cash value was $15,000, your remaining cash value is now $5,000 (before interest accrues on the loan). This means less money is growing for you, and less money is available if you want to borrow again later.
If you die before repaying the loan, the insurance company subtracts the loan balance and any unpaid interest from your death benefit. Your beneficiaries receive less. For example, if your death benefit is $500,000 and you have an outstanding loan of $50,000 plus $5,000 in unpaid interest, your beneficiaries receive $445,000.
Some policies allow the loan to be repaid from the death benefit automatically, while others require your estate to repay it. The rules are in your policy contract.
Comparing term and permanent life insurance on borrowing
| Feature | Term Life Insurance | Permanent Life Insurance |
|---|---|---|
| Cash value | None | Yes, accumulates over time |
| Can you borrow against it | No | Usually yes (depends on policy type and contract) |
| Premium cost | Lower | Much higher |
| Coverage period | Fixed term (10, 20, 30 years, etc.) | Lifetime (if premiums are paid) |
| What happens at end of term | Coverage ends, policy expires | Coverage continues as long as premiums are paid |
Frequently Asked Questions
Can I borrow against my term life policy if I've had it for 20 years?
No. The length of time you have owned a term policy does not change the fact that it has no cash value. Term policies never build cash value, no matter how long you hold them. If your term is ending or has ended, the policy straightforward expires — there is nothing to borrow against.
What if my term policy has a rider that lets me access cash?
Some term policies include optional riders (add-ons) that create a small cash value or allow withdrawals. These are uncommon and are clearly stated in your policy documents. If you have such a rider, your policy contract will explain exactly what you can withdraw, when, and any fees involved. Check your policy documents or call your insurer to confirm whether you have this rider.
If I convert my term policy to permanent insurance, can I borrow right away?
No. When you convert a term policy to permanent insurance, the new permanent policy starts building cash value from that point forward. It takes time — usually several years — for enough cash value to accumulate before borrowing becomes available. Your policy contract will state when you can begin borrowing and how much cash value must be present.
Is there any way to get money from a term life policy before I die?
The only way to receive money from a term policy while alive is to surrender it, which means canceling it and receiving nothing (term policies have no cash surrender value). You would lose your coverage. If you need money, a personal loan or other asset is a better choice than surrendering life insurance protection you may still need.
Can I use my term life policy as collateral for a loan from a bank?
Some banks and lenders will accept a life insurance policy as collateral for a loan, but this is separate from borrowing against the policy itself. The lender holds the policy as security while you repay the loan. If you default, the lender can claim the policy. This is rare and typically only available for permanent policies with cash value. Ask your bank or lender whether this option exists.