Tax-Free Policy Loans: Accessing Money Efficiently

One unique feature of certain life insurance policies is the ability to borrow against the policy’s cash value.

These are known as policy loans.

Under current tax rules, loans taken from life insurance policies are generally not treated as taxable income, as long as the policy remains in force.

Example

Suppose a policy has accumulated $200,000 in cash value.

The policy owner may be able to borrow $50,000 against that value.

That loan could potentially be used for:

• Supplemental retirement income

• Business opportunities

• Major purchases

Since the loan is not treated as income under current tax law, it may offer tax-efficient access to funds.

However, policy loans must be managed carefully, because excessive borrowing could affect the policy’s performance.

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— Sahil Virani