Can I borrow money from my life insurance policy, and what happens if I do not pay it back?

Life insuranceAfter paymentTexasChecked Nov 7, 2026

From K.Actuary, founded by Sangmin Kwon, ASA · sources checked 2026-11-07 · Source: Texas Department of Insurance · Life insurance guide · What is permanent life insurance? View original ↗

In short

You can borrow only from a policy with cash value, not term.
Ask the insurer for your loan amount, interest rate and payoff.
An unpaid loan comes out of the death benefit.

What this means

Some permanent policies build savings you can borrow against [1]. Term policies do not have to offer loans in Texas [2]. In Texas, a policy that offers loans must lend up to its cash value plus dividend additions, at a set interest rate. The policy must be in force, premiums must be paid for at least three full years, and it must be properly assigned [3].

Texas law says an unpaid loan does not end the policy until what you owe equals or passes the cash value [4]. An insurer may delay a loan for up to six months after you ask [5].

Any loan you have not repaid, plus interest, is taken out of the death benefit [6]. If you take out the whole cash value, the insurer might cancel the policy, and it could affect your taxes [7]. These sources are mostly from Texas, and rules in your state may differ.

Your next step

Ask the insurer in writing for your cash value, loan amount, interest rate and current loan balance. In Texas, the insurer may delay a loan up to six months after you apply [5]. Check your yearly statement so the loan never reaches the cash value [4].

Check it yourself

Read the "policy loan" part of your policy and your latest annual statement. These sources are mostly from Texas, and rules in your state may differ. How loan interest is taxed is not in these sources — "Don't know yet". Ask the IRS or a tax adviser.

Where this comes from (7)

[1] Texas Department of Insurance · Life insurance guide · What is permanent life insurance? · checked 2026-11-07
Some permanent life insurance policies let you build savings over time. You can withdraw from, invest, or borrow against these savings.
[2] Texas Legislature · Texas Insurance Code · Sec. 1101.009(a)(1) · checked 2026-11-07
The following policies are not required to comply with this section: (1) a term life insurance policy;
[3] Texas Legislature · Texas Insurance Code · Sec. 1101.009(b) · checked 2026-11-07
A life insurance policy must provide that the company that issues the policy will loan to the policy owner at a specified interest rate an amount equal to the sum of the policy's cash value and any dividend additions to the policy, or, at the policy owner's option, an amount less than that sum, if: (1) the policy is in force; (2) the premiums for the policy have been paid for at least three full years; and (3) the po…
[4] Texas Legislature · Texas Insurance Code · Sec. 1101.009(c)(4) · checked 2026-11-07
failure to repay the policy loan or interest on the loan does not void the policy until the total amount owed under the loan equals or exceeds the policy's cash value.
[5] Texas Legislature · Texas Insurance Code · Sec. 1101.009(d) · checked 2026-11-07
A life insurance policy may provide that a policy loan may be deferred for a period not to exceed six months after the date the application for the loan is made.
[6] National Association of Insurance Commissioners · Life Insurance consumer page · What happens to the cash value in my policy when I die? · checked 2026-11-07
Any loans you have not repaid (plus interest) will be subtracted from the death benefit.
[7] Texas Department of Insurance · Life insurance guide · What is permanent life insurance? · checked 2026-11-07
If you withdraw the entire cash value, the company might cancel your policy. If that happens, the coverage will end, and it could affect your taxes.

How we found this

We matched your question to 7 official sources, quoted the exact lines, and re-checked each quote against its source on 2026-11-07.

What we don’t know yet

Your own plan or notice may say something different. If your letter cites another rule, send it and we will look again.

Every answer is checked against the official rule it quotes.

Information only — not legal advice. Your plan, insurer or agency decides.

This answer quotes the official sources listed above, with the date we checked them. Your own policy, notice and state rules control. We are not your lawyer or your insurer. We don’t file, argue or negotiate claims for you — you send any letter or form yourself.

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