Policy Loan Calculator
Calculate life insurance policy loan costs and impact
Policy Loan Details
Available cash value in your policy
Amount you want to borrow (max 90% of cash value)
Policy loan interest rate (typically 5-8%)
Expected annual cash value growth
Loan Analysis
Maximum Loan Available
$0
Loan Details
Repayment Summary
Impact on Death Benefit
Cash Value Projection
Recommendations
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When to Use Policy Loan Calculator
Emergency Funding
Calculate policy loan costs for emergency cash needs without credit checks or lengthy approval processes.
Investment Opportunities
Compare policy loan rates with investment returns to determine if borrowing makes financial sense.
Debt Consolidation
Estimate savings by using low-rate policy loan to pay off high-interest credit cards or personal loans.
Business Funding
Calculate policy loan as alternative to business loans for startup capital or expansion funding.
Retirement Income
Plan tax-free retirement income by borrowing against cash value instead of withdrawing from taxable accounts.
Death Benefit Impact
Understand how unpaid loans reduce death benefit to ensure adequate coverage for beneficiaries.
Frequently Asked Questions
What is a life insurance policy loan?
A policy loan lets you borrow against your permanent life insurance cash value. You're borrowing from the insurance company using your cash value as collateral, not withdrawing your own money. Available on whole life, universal life, and variable universal life (not term insurance). Can borrow up to 90% of cash value. No credit check required. Interest rates typically 5-8%. Loan reduces death benefit if unpaid. Cash value continues growing while borrowed. Repayment is flexible - no required schedule.
How much can I borrow from my life insurance policy?
Maximum loan amount: 90% of cash value (most insurers). Example: $100,000 cash value = $90,000 max loan. Must have sufficient cash value (usually 2-5 years of premiums paid). Some policies require minimum loan ($500-$1,000). Loan cannot exceed death benefit minus outstanding loans and interest. Variable policies may have lower limits during market downturns. Check policy contract for specific limits. Borrowing capacity increases as cash value grows.
What is the interest rate on policy loans?
Policy loan interest rates: 5-8% typical range. Fixed rate policies: 5-6% (set in contract). Variable rate policies: 6-8% (adjusts with market). Participating whole life: 5-6% with dividends offsetting cost. Universal life: 6-8% tied to indices. Lower than credit cards (18-25%) and personal loans (10-15%). Interest compounds annually if unpaid. Some policies credit dividends to offset interest. Check your policy illustration for exact rate.
Do I have to pay back a policy loan?
NO required repayment schedule - major advantage. Can repay anytime: full amount, partial payments, interest only, or nothing. If unpaid: interest compounds and adds to loan balance, death benefit reduced by outstanding loan plus interest, policy may lapse if loan + interest exceeds cash value. Recommended: pay at least annual interest to prevent compounding. Can repay in full anytime without penalty. Unpaid loans deducted from death benefit when you die. Tax consequences if policy lapses with outstanding loan.
How does a policy loan affect my death benefit?
Death benefit reduced by outstanding loan plus accrued interest. Example: $500,000 death benefit, $50,000 loan + $5,000 interest = $445,000 paid to beneficiaries. Reduction is dollar-for-dollar (loan + interest). If you die with unpaid loan, beneficiaries receive reduced amount. Can restore full death benefit by repaying loan. Loan does not cancel coverage - policy remains active. Important: inform beneficiaries about outstanding loans. Consider term rider to cover loan amount.
Are policy loans tax-free?
YES - policy loans are generally tax-free. IRS treats loans as debt, not income (no tax). Cash value grows tax-deferred while borrowed. Death benefit (minus loan) is tax-free to beneficiaries. EXCEPTION - tax consequences if: policy lapses with outstanding loan (taxable gain), policy is MEC (Modified Endowment Contract), you surrender policy with loan. To avoid taxes: keep policy in force, repay loan before surrender, don't let loan exceed cash value. Consult tax advisor for your situation.
What happens if I don't repay my policy loan?
If loan unpaid: 1) Interest compounds annually, increasing loan balance. 2) Death benefit reduced by loan + interest. 3) Policy may lapse if loan + interest exceeds cash value. 4) Lapse triggers taxable event (gain = cash value - premiums paid). 5) Lose life insurance coverage. Prevention: monitor loan balance annually, pay at least interest to prevent growth, maintain sufficient cash value cushion, consider automatic premium payments. Warning signs: loan approaching 90% of cash value, policy performance notices from insurer.
Is this policy loan calculator free?
Yes, this policy loan calculator is completely free with no registration required. Calculate loan amounts, interest costs, repayment schedules, and death benefit impact unlimited times. Compare different loan scenarios, estimate total costs, and plan repayment strategies. Download detailed loan analysis reports. No personal information needed, no spam, just instant calculations to help you make informed decisions about borrowing against your life insurance.
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