Loan from Life Insurance? Discover Financial Freedom

You're in a financial bind, and you're exploring all options. You remember your life insurance policy and wonder, "Can I take a loan against it?" It's a common question for many Australians looking to tap into potential funds without the hassle of traditional loans. In this blog post, we'll delve into this option, providing you with detailed insights and steps to consider.

Understanding Life Insurance Loans

Life insurance can serve not only as a safety net for your loved ones but also as a financial resource during your lifetime. Essentially, a life insurance loan is possible if you have a permanent life insurance policy, such as whole life insurance, that accumulates cash value over time. This cash value can be borrowed against, offering a unique liquidity option.

Unlike personal loans or mortgages, a life insurance loan doesn't require a credit check. The policy itself acts as collateral. However, it's crucial to understand that borrowing against your policy reduces its death benefit until the loan is repaid. This means that if you were to pass away with an outstanding loan, the remaining debt would be deducted from the payout to your beneficiaries.

Current Rates, Requirements, and Options

In 2026, borrowing against your life insurance policy in Australia typically involves variable interest rates ranging from 6.49% to 8.5%. These rates are generally lower compared to unsecured personal loans, which can range from 8% to 15%.

Here are common requirements and options when considering a loan from your life insurance:

• Your policy must be a permanent life insurance policy with accumulated cash value.
• The amount you can borrow is usually up to 90% of the policy's cash value.
• Interest is charged on the loan, and if unpaid, it can be capitalised, increasing the loan balance.

Option	Interest Rates	Eligibility
Life Insurance Loan	6.49% - 8.5%	Permanent policy with cash value
Personal Loan	8% - 15%	Good credit score

How to Borrow Against Your Life Insurance

Here's a step-by-step guide to help you navigate borrowing against your life insurance:

1. Review Your Policy: Confirm that your policy is eligible and check the available cash value.
2. Contact Your Insurer: Reach out to your insurance provider to discuss loan options and understand the terms.
3. Calculate the Impact: Assess how borrowing will affect your policy's death benefit and future premiums.
4. Submit a Loan Request: Complete the necessary forms provided by your insurer to initiate the loan process.
5. Receive Funds: Once approved, funds are typically disbursed within a few days.
6. Manage Repayment: Plan how you'll manage interest payments to avoid reducing your policy's value over time.

Expert Tips and Considerations

Before proceeding with a life insurance loan, consider these expert tips:

• Evaluate Alternatives: Before taking a loan, explore other options such as personal loans or lines of credit that might offer better terms.
• Understand Tax Implications: Typically, life insurance loans are not taxable, but consult a tax advisor for advice tailored to your situation.
• Impact on Beneficiaries: Consider the potential impact on your beneficiaries if the loan is not repaid before your death.
• Regularly Review Your Policy: Keep track of your policy's cash value and outstanding loan balance to ensure it aligns with your financial goals.

Esteb and Co can assist you in navigating these options, leveraging our access to over 83 lenders to provide a comprehensive financial solution tailored to your needs.

Frequently Asked Questions

• Can I borrow from any type of life insurance? No, only permanent life insurance policies with cash value, like whole life insurance, allow you to borrow against them.
• How quickly can I get the funds? Once approved, funds are usually available within a few business days, but this can vary by insurer.
• Will my beneficiaries be affected? Yes, any outstanding loan amount will be deducted from the death benefit paid to your beneficiaries.
• Do I have to pay back the loan? While repayment isn't required, unpaid interest can capitalise, reducing your policy's value over time.
• Are there any fees involved? Some insurers may charge a processing fee, so it's best to confirm with your provider.
• What happens if I surrender my policy? If you surrender your policy, any outstanding loan will be deducted from the cash surrender value.